Банкеръ Weekly



The greatest achievement of the economy in 2003 - foreign direct investments - traced the road to one of Bulgaria's most serious challenges for next year. According to expectations, in end-2003 they will exceed USD1.3BN, which is appraised as record high for this country. Most of the greenfield investments have been ensured by foreign companies or through loans from them to their subsidiaries, registered in Bulgaria. If a dissection of the record high foreign direct investments is made, it will become obvious that investments in trade, real estates and the processing industry had the greatest contribution. It is worthwhile underlining that in the first two cases the growth of investments was rather of a speculative character. The mania for buying real estates, for instance, is a fashion that will be lived through long before Bulgaria's admission to the EU. It's a pity that before that fashion season has elapsed, a number of building contractors will fall into a crisis and will drag along the banks. The next important moment on which the accent should be laid is that the increase of foreign direct investments is not only positive, because the flow of foreign investors is one of the reasons for the tension regarding the foreign-trade deficit. The explanation is that the foreigners who make greenfiled investments in Bulgaria import equipment for their future enterprises and thus deepen the hole in foreign trade. The data do not fully confirm that explanation, at least for the time being. According to statistics of BNB's INTERNET website, the highest growth is that of consumer goods (more specifically of furniture and clothes) and of raw materials. Investment goods (i.e. those connected with the reproduction of the economy) have maintained their 25% share of the entire import. It cannot be denied that the import of machines and equipment has increased, but the import of electric tools has gone down. Growth in the import of raw materials is chiefly due to plastics and ferrous metals. However, it could be expected that the projects, launched by foreign investors, will maintain the high rates of import next year as well. And the auspicious effect of these investments on the export of Bulgarian industry is not likely to be felt in 2004. Bulgarian export may rather rely on the resumed revival of European economy where most of the Bulgarian-made goods (mainly textiles, clothes and non-ferrous metals) are marketed.Despite all negative forecasts about the deficit in the current account, the big forex and fiscal reserves soften such expectations. The other sleeping risk is inflation, which according to the Government's expectations, will exceed 4%-4.2% in 2004, i.e. it will stay at its 2003 level. At least two reasons could make us doubt that forecast. The first one is the series of price hikes, regulated by the Government and the impact of the higher excise duty rates, imposed by a law. It has already become obvious that the increase will influence the market of all goods and services. The prices of various fuels will go up between 4% and 12%, which means that all commodities (using these fuels) will be considerably hiked. The price rise of fuels will inevitably result in an increase of city and railway transport fares. Telephone services are also expected to go up, and the already traditional hike of electricity and heating bills is pending. This means that all goods will go up. The most popular Bulgarian cigarettes will be some 30%-40% more expensive as of next year. Bulgaria's preparations for joining the EU will increase the expenditures of companies, which will have to invest additional money in order to satisfy the EU standards. This cannot but reflect on prices, too. This leads us to the next risk in front of the economy, connected with the wavering restructuring of monopoly branches and the financing of infrastructural projects. The constant problems, accompanying the existance of the Bulgarian State Railways (BDZ) are eloquent examples of how the long-delayed reforms and the attempt to realize them formally open big gaps in the budget. Other unreformed sectors, such as about twenty municipal central heating companies and Navigation Maritime Bulgare (Navibulgar) have also line up in the queue for money from the budget. The agrument regarding the construction of motorways revealed other risks as well. The Roads Act, which was not passed on Sunday (December 21, 2003) has only temporarily postponed the Finance Ministry's dealing with the municipalities.

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