Bulgaria Market Opportunities
Bulgaria was hit quite hard by the coronavirus crisis, also due to strict measures, which was reflected in the results for 2020. At the end of the year, the year-on-year drop in GDP reached 4.2% according to preliminary data from the National Statistical Institute. EIU analysts expect real GDP to return to almost the pre-crisis level already this year. The biggest drop was felt by the tourism and services sector, which was hit by the pandemic with extensive restrictions on activity and the shift and general weakening of the annual summer tourist season.
The trade, transport and entertainment sectors have also felt the effects, and it is expected that the negative effect will spill over into other areas of the economy. On the other hand, the relatively good condition of the economy, the positive external and fiscal balance before the outbreak of the covid-19 crisis could help a faster recovery from the crisis during 2021, depending on the further course of the pandemic.
After a shock slowdown in the economy due to the lockdown in the 2nd quarter, economic activity recovered slightly in the third quarter (GDP growth of 4.3% compared to the previous quarter), however, the growth trend continued to be hampered by the country’s dependence on tourism, which accounts for 10.8% of GDP, ensures 10.6% of employment and, thanks to the restrictions, faced serious difficulties even during the winter season. The government believes that, thanks to preventive anti-epidemic measures, it will be possible to save the summer season and revive the market. A decrease in household consumption by 2.2% in 2020 also had a negative effect. As for fixed investments, it is estimated that there was a decrease of 1.7% last year.
Bulgaria found itself in a relatively strong fiscal position in the face of the pandemic, with a state budget surplus of 2.1% of GDP in 2019. As part of the package of measures against the economic crisis caused by the coronavirus, the government announced a higher share of spending on health care, an improvement in the salary evaluation of workers in hospitals and other health facilities, as well as for the security forces. At the same time, it started subsidizing in the economic and social spheres, agreed to postpone taxes, launched a guarantee program for small and medium-sized enterprises, and started the transfer of funds from funds and budget chapters to expenditure items where help was needed for the economy.
There was an increase in social expenditures, on the other hand, the state budget felt a decrease in tax revenues. In total, these measures should amount to less than 5% of GDP from last year’s level, and the surplus of the state budget should reach a deficit of around 3% of GDP for the first time in 4 years, with the prospect of a decrease to 2-2.3% a year later. Public debt is likely to exceed 25% of GDP in 2021 and could rise to 28% in 2023. Bulgaria’s government hopes the country will join the eurozone in 2024, but analysts say this will not happen until the end of 2025 due to the slow pace some reforms.
Post-COVID-19 opportunities for foreign exporters
According to allcountrylist, Bulgaria’s energy sector has a difficult period ahead of it, when it will have to make up for lost time in the restructuring of an outdated energy mix, and challenges in the form of the EU Green Deal energy strategy. The government revived the Belene nuclear power plant construction project, announced a tender for investors and suppliers, and by the end of 2020 should choose from a short list of investors (Russia, China, South Korea) and suppliers (USA, France). The liquidation of the reactors at the nuclear power plant in Kozloduy continues, which requires significant investments, including financing from EU funds, the power plant itself is also undergoing a modernization process (for example, in the area of the management and control system), and the government is even considering the possibility of building a small modular reactor on the territory of the NPP.
The construction of new conventional sources is not expected, while Bulgaria has to solve the issue of closing inadequate thermal power plants and other sources in connection with the EU goals. The most significant share in the energy mix is represented by thermal power plants and the nuclear power plant Kozloduj. In the coming years, the energy sector will require significant investments in the renewal of production facilities, the transmission and distribution networks, as well as the strengthening of energy efficiency.
Although the country is already meeting the target of 20% share of renewable energy sources, there is an interesting untapped potential for building new capacities (especially solar). This was also reflected in the preparation of Bulgaria’s Recovery and Sustainability Plan, through which the country would like to obtain BGN 300 million from EU resources (with private co-financing of up to BGN 0.5 billion) for the implementation of new energy projects (e.g. production of green hydrogen or biogas ).
Bulgaria is also investing in natural gas transmission infrastructure to diversify sources and ensure security of supply. The construction project of the interconnection between Turkey and Serbia (connection to the TurkStream gas pipeline) under the name Balkan Stream and at the same time the connection with Greece (Gas Interconnector Greece-Bulgaria, IGB Project) continues, in the future it is also planned to expand and increase the capacity of the underground storage tank for natural gas storage in Čieren and by greater use of gas, e.g. in industry.
As part of the proposed Recovery and Sustainability Plan, the Bulgarian government intends to mobilize significant resources (BGN 900 million together with additional co-financing from private sources in the amount of BGN 828 million) for the implementation of the program, consisting of three funds – Technological Modernization, Green Transition and Digitization.
The National Adult Education Program is also being prepared, which should contribute to the harmonization of workers’ skills with the requirements of the labor market, using a massive program of vouchers for the training of basic digital skills and abilities with an expected budget of BGN 192 million, increase the current low level of knowledge and skills, and prevent the so-called digital exclusion. Specific projects along with the full version of the Recovery and Sustainability Plan can be found at https://www.nextgeneration.bg/14.
In the coming years, the army is planning large projects to modernize weapons and equipment worth almost EUR 2 billion. Tenders are underway for the purchase of armored infantry vehicles (for ground and special forces) and military patrol boats. The modernization of T-72 tanks is also being prepared, and the modernization of radars for air defense is becoming more and more urgent (for example, there is talk of an order for 3D radars worth approx. 400 million BGN, where there is a potential for connection with passive technologies). In accordance with these plans, the demand will probably focus mainly on aviation technology, armored vehicles, cyber security, communication, information and navigation systems, optoelectronics, security infrastructure protection.
Water management and waste industry
The country’s water management sector is in a very bad state, there has not been enough investment in the renewal of distribution networks for many years. Accession to the EU did not bring a significant improvement either, losses in the supply of drinking water decreased by only less than 1% during this period and reach the highest value in the EU – 61.5%. A World Bank study estimates that more than €6 billion should be invested in the sector in the next 10 years, of which EU funds should cover 30-40% of this amount. In the current program period, EUR billion is allocated to the sector.
From specific actions, we can recall that the Bulgarian government decided to allocate a record amount of BGN 460 million (EUR 235 million) in the form of investments in water infrastructure in the center of the southern Black Sea coast of Burgas and other seaside resorts. More than two-thirds of said funds will come from EU funds, while the rest must be provided by the local water and sewerage company. The project should be implemented by the end of 2023.
The greater part of the funds will be allocated to the replacement of the existing and the construction of a new network of water pipes and sewers. The reconstruction of 158 km of water mains and 22 km of sewers is expected, as well as the construction of 7 km of new water mains and 73 km of sewer lines. One new wastewater treatment plant will also be built, three others will undergo reconstruction, and together with them two drinking water treatment plants.
Healthcare and pharmaceutical industry
Healthcare spending in 2019 reached 8% of GDP (16th place in the EU), but public spending reached only 4.5% (52%), approximately the same part was paid by citizens out of their own pockets (48%). The country has an exceptionally high share of patient payments in total healthcare spending, which amounts to 46.5%, with public health insurance covering 48.5% and private insurance companies 5%.
The private sector is growing rapidly, with a 31% share of the healthcare market. Bulgaria offers good opportunities for upgrading hospital equipment in both the public and private sectors. This year, it is expected that the issues related to the construction project of the new pediatric hospital in Sofia will be resolved and a tender will be announced for both the construction and the equipment and facilities. Estimated costs for construction alone are now around EUR 50 million.
In connection with the covid-19 pandemic, weak points in the health care system have become apparent, which the government should urgently address in the coming period due to a possible second wave of the pandemic during the autumn months. In addition to the purchase of new ambulances, which was financed by the EU through funds, one can expect investments in equipping infectious disease wards, building mobile devices, ICUs, strengthening stocks of protective equipment, but also in the development of vaccines and medicine not only against the coronavirus, but also for other infectious diseases. The government has already announced the allocation of BGN 24 million to the state-owned enterprise Bul Bio.
Projects were also prepared for the healthcare sector within the framework of the Recovery and Sustainability Plan – for example, a project aimed at building a national registry for the prevention and monitoring of oncological diseases, analysis and prevention of risk factors, and the involvement of BG in the pan-European center for the fight against cancer. The planned budget is BGN 4 million. It is also expected to support reform efforts in updating the strategic framework of the sector, expanding e-health and overcoming the shortage of medical personnel.
Rail and rail transport
The reconstruction of railway lines in the country is a priority within the framework of financing from EU funds in the current financial period. In particular, the main line connecting Europe with Turkey is undergoing complete reconstruction. Passenger rail transport is a monopoly of the state transport company BDŽ, in freight transport, on the other hand, opportunities also open up for private transporters.
The rolling stock requires investment in renewal, therefore BDŽ has been gradually announcing tenders for maintenance and repairs (137 million BGN over 5 years) and for the purchase of new locomotives (16 sets for 247 million BGN) since 2019. It also strengthens the freight transport sector, including the private sector (for example, multimodal terminals and combined train-truck transport), which again means the need for investment in locomotives and wagons.
Another area of rail transport where there is potential for application (e.g. sets) is the development of urban mass transport in the capital Sofia, i.e. the metro, which accounts for approximately two-thirds of the total amount of EUR 500 million invested in the construction of line No. 3 ( stages 1 and 2) resources from EU funds. The Metropoliten EAD company also plans to further expand the mentioned line No. 3 in the next programming period.
Bulgaria also plans to receive BGN 0.5 billion (with private co-financing of up to BGN 0.9 billion) for sustainable urban mobility from the previously mentioned Recovery and Sustainability Plan (in addition to the expansion of the metro network, a pilot scheme supporting the modernization of the public transport fleet).