Why invest in Bulgaria? The Italian Ambassador in Sofia speaks

Why invest in Bulgaria? Over the course of the posts we have published so far on this blog, we have always tried to give you our (privileged) point of view on business opportunities in Bulgaria, a point of view developed starting from our knowledge of the territory and the (Italian) companies and not) who insist on it.

Today, with this post, we want to give you a more institutional opinion, that of Giuseppina Zarra, Italian Ambassador to the diplomatic headquarters of Sofia. The interview was collected by the Italian Ministry of Foreign Affairs and we present it here in its entirety.

Italy and Bulgaria boast very solid relations and an important presence of Italian companies in the south-eastern European country. What prospects are there for an increase in trade?

Bulgaria is a country traditionally very close and linked to Italy by consolidated economic relations. Even historically, the relations between the two countries have always been characterized by the presence of deep bonds of friendship and common interests. In addition to cultural ties, Italy has also acquired increasing weight from an economic and commercial point of view, establishing itself as one of Bulgaria's main partners. With an overall trade in 2020 of 4.09 billion euros, Italy confirmed itself as the country's fourth commercial partner, preceded only by Germany and neighboring Turkey and Romania.
Italy today also represents one of the main foreign investors in the country (we are in fourth place after the Netherlands, Austria and Germany) with a constant growth in the number of Italian companies present, which has increased by over 300 percent in the last 10 years and has reached today there are almost 12 thousand companies with Italian participation, of which over a thousand with a turnover of more than 200 thousand euros. Italian companies also contribute to the creation of over 50 thousand jobs in the country. The presence of Italian companies on the Bulgarian market concerns both large groups (among others Generali, Miroglio, Rigoni di Asiago, Unicredit-Bulbank) and small and medium-sized enterprises, involved in a large number of sectors: textiles, energy production (in particularly renewables), metallurgy, transport, manufacturing, infrastructure, environment and financial services.

However, the growth potential of relations between the two countries is still great and ready to be fully exploited. In fact, Bulgaria offers one of the most favorable tax systems at a European level (flat tax at 10 percent) and one of the lowest labor costs in the EU context. The two things together are making Sofia a dynamic European capital thanks to the proliferation of service centers and administrative headquarters of the main international economic realities which are increasingly choosing the Bulgarian capital as the location for their offices. Furthermore, the geographical position of the country, in the heart of the Balkans, makes it a strategic hub for energy infrastructures and connection routes to Asian markets and along the north-south routes.
Furthermore, according to the most recent data from the Bulgarian Statistical Institute, the country's GDP would record a decline of -1.8 percent for the first quarter of 2021 compared to the same period of 2020 and a growth of +2.5 percent, compared to the fourth quarter of 2020. The most significant decline in GDP in the first quarter of 2021 is related to the Culture and Entertainment sector (-7.3 percent) and the Mining, Manufacturing and Energy Production Industry (- 6 percent).

What have been the effects of the Covid-19 pandemic on the economic fabric of Bulgaria and what initiatives have the Bulgarian authorities taken?

In order to contain the spread of the Covid-19 pandemic, the Bulgarian authorities introduced a state of health emergency from March to May 2020, with relatively lighter measures compared to other European countries in that same period. The first wave of the Covid-19 pandemic was more contained in Bulgaria than the EU average, for several reasons, including the low population density, the prior closure of schools due to the influenza epidemic, the distance of the country from the main tourist itineraries and the absence of international passenger transport hubs.

Following the easing of measures after the spring, there was a constant increase in cases during the summer of 2020. The second wave hit the country severely, especially in the months of October and November 2020. The Government therefore re-introduced more severe measures at the end of November 2020, which were subsequently removed only in the spring of 2021. Before the pandemic, a series of structural reforms , the successful integration of Bulgarian manufacturing companies into global production chains and sound macroeconomic policies had led to a five-year GDP growth of more than 3 percent (+3.7 percent in 2019), a rapid
increase in real wages and a drop in unemployment to historic lows. However, the pandemic and the related measures to close economic activities combined with the slowdown of the global economy and the eurozone have also had serious repercussions in the country. To contain the economic effects of the health emergency, the Bulgarian Government introduced fiscal stimulus measures, estimated between 2.4 and 2.5 percent of GDP for 2020 and 2021. This made it possible to contain the loss of jobs, to concentrate more resources on the healthcare sector and to alleviate the financial pressure on the most affected companies and families.

Rigorous budget management prior to the pandemic also provided Bulgaria with sufficient fiscal maneuver space for an initial emergency response to the crisis. In fact, in 2019 a positive balance of the public budget was reported (1.9 percent of GDP) and one of the lowest public debts in the Eurozone (equal to 20.2 percent of GDP in 2019). Among the main measures introduced by the Bulgarian Government, in particular, there are the 60/40 wage support program which provides subsidies for the coverage of 60 percent of the salary, including social security, by the State for workers in companies in the sectors most affected by the crisis, including: tourism, catering, transport, private education, sports and others. The Government has also established provisions in favor of workers and families for the provision of subsidies for the hiring of new employees among the unemployed; for increasing wages in the health, social and public order management sectors; for the increase of all pensions; for the reduction of the VAT rate from 20 percent to 9 percent for the catering sectors (excluding catering), children's products, publishing and books, sports/fitness training, travel and tourism . As regards businesses and economic activities, the Executive has ordered the increase in the capital of the Bulgarian Development Bank, with the aim of ensuring guaranteed loans or loans on preferential terms for individuals on unpaid leave and for businesses, through the bank's programs or contracts with other commercial banks. Programs with European funding have also been activated aimed at supporting SMEs in the affected sectors, with grants ranging from 1,000 to 150 thousand Bulgarian levs. For the particularly affected sectors (catering, sports/recreational activities, cinema, private education) ad hoc grants and subsidies programs have been arranged.
Finally, a fund has been set up dedicated to supporting freelance artists, in the form of projects and subsidized financing.

What are the priority objectives of the Sofia authorities in the context of the Recovery Plan and which sectors of the Bulgarian economy can see a greater presence of Italian companies?

Bulgaria is today among the very few EU countries that have not yet formally presented their National Recovery and Resilience Plan to the Union Authorities, due to the complex political moment it is going through. Following the parliamentary elections last April and those of July 2021, in fact, the parties have not yet been able to form a Government and the country is currently led by a transitional technical Executive. However, aware of the increasingly imminent urgency of presenting the Plan, the Bulgarian authorities have in recent months developed a draft program in close coordination with the EU institutions. As for all EU countries, the main aim of the Plan will be to restore impetus to the national economy by providing the sectors most affected by the economic consequences of the health emergency with the necessary resources
for a rapid, sustainable and long-lasting recovery. However, the impressive resources that will be mobilized thanks to the Plan will also constitute an important opportunity to intervene in those sectors of the country that present the most critical issues and therefore offer greater potential for growth and development.
The most updated draft of the Plan provides in particular for the introduction, on the Italian model, of 8 billion levs (around 4 billion euros) of national co-financing alongside the 12.6 billion levs of European funding. The Plan includes 57 investments and 43 reforms, with particular attention to the "Business climate" and "Decarbonization of the economy" components.
The Plan drawn up by the Sofia Authorities includes four pillars in particular, which are linked to innovation, green policies, digitalisation and infrastructure and finally to social cohesion, with interventions also in the medical and healthcare fields. The draft plan can offer ample space for collaboration for Italian investments. In fact, I am convinced that Italian companies can bring considerable added value to the development of the country and that the Plan itself, once defined, will constitute a unique opportunity in terms of mobilizing resources for our economic realities in the area.
This cooperation could also bring a clear benefit to the country, in particular in the energy sector, where the inevitable energy transition could begin which should progressively relieve Bulgaria from its dependence on coal and gas thanks to greater diversification of energy supplies and the development of renewable. The infrastructure and transport sector will also be central, in order to build a network of modern connections that also include the Black Sea ports of Varna and Burgas, which today are still inadequate to manage commercial traffic that aspires to reach the potential linked to the completion of the European TEN-T Corridor n. 8, from the Black Sea to the Adriatic. Finally, in the digitalisation sector, bilateral collaboration could allow a leap in quality in the provision of services and in the functioning of the Public Administration.
These are precisely the sectors at the center of the Bulgarian PNRR and in relation to which there are numerous excellent Italian companies that could provide their contribution to the development of the country.