Bulgarian economy

 

 

 

A conservative fiscal policy, structural reforms and pegging the national currency (leva) to the euro have created a stable macroeconomic and policy framework during the last decade and brought about the country’s entry into the European Union on January 1, 2007 which has been assumed as a major push to the country.

 

The country offers attractive incentives for foreign investment: the corporate tax rate is 10% and income tax is the lowest in Europe, also 10%.

 

One of the negative aspects that need to be highlighted is the country’s unreliability of its judicial system, as well as high levels of corruption, which have been criticized on several occasions from the World Bank and the European Union.

 

 The growth of the Bulgarian economy has been strong and steady since 1997, and exceeding 4.5% since 2000. In 2007 was 6.3%, and in the first half of 2008 reached 7%, driven by consumption and gross capital formation. This growth has led to an intense reduction of unemployment from 18% in 2000 to 6.0% recorded in July 2008, while inflationary pressures have been accentuated by exogenous factors such as price hikes of energy and droughts. In fact, inflation in July 2008 was the second highest in the European Union, only surpassed by Latvia: 14.5%.

 

Consequently, the country has increased its demand for foreign products while exports have grown at more modest rates resulting in a growing trade deficit, which in 2007 was 21.5% of GDP. So far this decade trade deficits have been compensated by the large foreign investment, which in 2007 surpassed the 6,000 million euros (represented a 21.1% of GDP, thereby covering 98.5% of the current account deficit). However, 2008 data are indicating a significant decline, but we should wait until the first months of 2009 to ascertain the true scope of the fall in investment.

In the following table we can observe the main macroeconomic data and its evolution in the last years:

 

MAIN ECONOMIC INDICATORS	2005	2006	2007	2008*
GDP
(%)	5,3	6,6	6,3	7,0
CONSUMER PRICES
Year base  (%)	5	7,3	8,4	15,0
End of period  (%)	6,5	6,5	12,5	14,5
INTEREST RATE
Year average  (%)	2,0	2,7	3,9	5,2
UNEMPLOYMENT RATE
Population (x 1.000 habitants)	7.719	7.679	n.d.	n.d.
% Unemployment vs Employment	10,7	9,1	6,9	6,0
DIRECT FOREING INVESTMENT
M€	3.152,1	5.961	6.108,9	2.078,6
CURRENCY AND EXCHANGE RATE
Currency: Leva. Fixed Exchange Rate: 1,95 levas = 1 euro.

Source: Bulgarian Nacional Bank (BNB) (http://www.bnb.bg); Nacional Statictics Institute (NSI) (http://www.nsi.bg)

* GDP from Q1. Inflaction from July 2008. Interest rate: September 2008. Unemployment: July 2008.

Direct Foreign Investment: July 2008.

Recently, the country is experiencing a phase of strong growth that is accelerating its process of real convergence with other EU members, while presenting serious imbalances in the figures for inflation and the external sector. The income level of Bulgaria is far below that of its European partners. GDP per capita in 2007 was 3,800 euros and forecasts for 2008 are to reach the 4,300 euros. In purchasing power parity, GDP per capita of Bulgaria in 2007 was 38.3% of the European Union average of 27, according to data from Eurostat.

Below is a table which lists the areas of origin of the components of GDP and spending.

  

	2004 %	2005 %	2006 %	2007 %
SECTORS
AGRICULTURE	9,2	7,8	7	5,1
INDUSTRY (ENERGY INCLUDED)	20,3	19,7	19,7	19,8
CONSTRUCTION	4,1	4,5	5,5	6,7
TRADE, HOTELS, RESTAURANTS, TRANSPORT AND COMUNICATIONS	19,5	20	19,5	20
FINANCE AND REAL STATE	16,8	17,4	17,6	18,1
OTHER SERVICES	13,7	12,9	12,5	12,4
ADJUSTMENTS (TAXES SUBTRACT SUBSIDIES)	16,4	17,7	18,2	17,9
TOTAL	100	100	100	100
EXPENDITURE
CONSUMO	87,8	88,2	87	85,3
Private Expenditure	69,3	70,2	70,4	69,1
Public Expenditure	18,4	18	16,6	16,2
GROSS CAPITAL FORMATION	23,1	28,0	31,8	36,8
Gross fixed capital formation	20,5	24,2	26	29,8
Stocks variation	2,6	3,8	5,8	7
EXPORTS	57	60,2	64,5	63,4
IMPORTS	68,5	76,4	83,3	85,5

Source: Nacional Statistics Institute (NSI) (http://www.nsi.bg).

As you can see, the sector is the most relevant for franchising is: transports, hotels, food trade and leisure represent great opportunities for franchising.

 

It is also a huge development of the property sector, where the franchise system is playing an important role in the expansion of large networks of estate agents.

Government forecasts put growth at the end of 2008 by 6.3%, while The Economist foresees growth of 6.1% for 2008 and 6.2% in the next two years and the IMF lies in this variable 5.5% in 2008 and 4.8% in 2009.

 

Bulgaria is a country that presents many opportunities and with a long way to follow in which the franchise could play an important role, given the need for management models of success, adding high value and to helping to replace or improve the lack of skilled human capital that is beginning to be felt in the country.[/lang_en]