Банкеръ Weekly



The highly-publicized Bill on the Encouragement of Investments in Bulgaria that was approved by the Cabinet last autumn failed to delight the European Commission in Brussels. The reason is quite prosy - the commissioners were embarrassed because the future law did not clearly define procedures for the launching of state subsidies to companies determined to invest over BGN100MN in the Bulgarian economy.As it is well known, the Government proposed that in cases of large investment projects the accompanying infrastructure (systems for water or electricity supply, as well as road networks) be constructed with budget funds. For the first time this scheme has to be applied for the investment of the Turkish Sisejam company in the building of a flat glass plant in Targovishte. According to Lidiya Shouleva, Bulgaria's Vice Premier and Minister of Economy, the project will test the pending amendments to the Investment Act. Unfortunately, however, the protests of Brussels will lead to more work on the amendments and will delay their application by about a month. During the presentation of the 2003 report of the Foreign Investment Agency on January 13, the agency's Chairman Pavel Ezekiev announced that the Parliamentary Economic Commission should have finished writing the draft these days. But the office of the commission presided by Valeri Dimitrov told the BANKER weekly that the MPs are allowed to make new proposals by January 19.Despite the regulation problems, there is some good news, too - direct foreign investments in the country have reached a record high level. According to the latest data provided by the Bulgarian National Bank (BNB), investments made by foreign companies in Bulgaria between January and October 2003 amount to USD1.277BN. That's USD505.6MN (65.9%) more than the investments attracted in the same period of 2002. The growth is mainly due to investments in shares and other capital, USD604MN and USD610.9MN respectively. The privatisation provided USD363.9MN (mainly due to the sale of DSK Bank to the Hungarian OTP Bank). Reinvested profit amounts to USD57.7MN, and the remaining USD240.1MN comes from commercial transactions.Experts from the Foreign Investment Agency claim that after the November and December data are processed, the amount will grow to USD1.4BN (8% of the GDP). Practically, this is the best achievement since the flow of foreign investments was first registered in Bulgaria. Until now, the record has been held by the government of the United Democratic Forces (UDF) which reported slightly more than USD1BN in 2000. Particularly delightful is the fact that over USD500MN are greenfield investments in 2003 (investments in the construction of new plants or production lines), Pavel Ezekiev commented. Among the companies that invested most are the Greek telecommunications operator Cosmo Bulgaria Mobile, the British Petreco (with USD45MN invested in oil production near Varna), and the Italian giant Miroglio which opened a few textile plants in the country.Investments in expanding the production capacity were made by the owners of the Bourgas-based oil refinery, LUKoil (Russia), the owners of the Pirdop-based copper plant, Umicore (Belgium), and the Greek Viohalco Group which is the majority shareholder in Stomana-Pernik. Also registered was an offset deal (stipulating further investments, according to the Public Procurement Act) signed by the Ministry of Defence and the DaymlerChrysler concern at the beginning of last December. According to the agreement, the company will substitute the vehicles used by the Bulgarian army. For the complete implementation of the project, the General Staff will have to name several domestic plants assistant suppliers of the Mercedes car producer. The Foreign Investment Agency prepared a list of the biggest investors in Bulgaria for the past ten years. The first five include OTE, Solvay, Umicore, LUKoil, and American Standard. The ranking in terms of nationality is headed by Greece, followed by Germany, Austria, and Belgium. Hungary is the leader for the first ten months of 2003.The good indicators achieved in 2003 filled the rulers with enthusiasm and they now predict that foreign direct investments in the country will exceed USD1.6BN in 2004. At the end of the meeting of the Council for Economic Growth held earlier this week, the Minister of Economy Lidiya Shouleva announced that the cabinet is going to hire an international consultant to provide preliminary information about investment projects developed in a world scale. Knowing these projects will help us make a better presentation of our own advantages, the Minister claims. Fresh revenues are expected to be added to the budget due to the sale of the Bulgarian Telecommunication Company (BTC), Bulgartabac, and the electricity distribution companies. Bulgaria Air company, Navigation Maritime Bulgare, and the Bulgarian River Shipping are to be privatised, too.The offset deals mentioned above are expected to bring foreign investments as well. Right now, the agency run by Mr. Ezekiev is working on several projects of this type. The companies it is negotiating with are rather famous. Among them are the Swedish Ericsson and SAAB, as well as the US General Electric. The foreigners are studying the opportunities to invest in the field of high technologies, telecommunications, and transport. Another potential investor is the German Siemens which has sent representatives to discuss the start of medical software production. Of course, all of these projects are still merely probable, so Mr. Ezekiev's statement that Bulgaria has already found its place on the map of big investors sounds a little premature. The legislative amendments are not sufficient to make the Cabinet's ambitions come true. Red tape, corruption, sluggishness of the judicial system... all of them keep disturbing the foreign businessmen. Even Mr. Ezekiev himself gave a few examples. The Chairman of the Foreign Investment Agency made a hint about the serious problems that Petreco is having with the Bulgarian tax authorities, since it was misled by state officials in its VAT declarations and has been fruitlessly trying to get back its tax credit for six months. A lot of potential investors in Bulgaria change their mind also because of the inefficient operations of the customs authorities which find it difficult to stop the illegal import in the country. One more obstacle for the foreigners appear to be public procurement tenders, lost because of apparently nontransparent reasons.

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