Bulgaria has seen its Eurozone and Schengen admission dates pushed back by at least a year, while political instability and frequent elections remain the norm. Still, there is room to hope for better times, according to Hristov & Partners Partner Pavel Hristov, mostly thanks to the vibrant IT, transportation, and logistics sectors.
“Bulgaria, much like other countries in the region and the EU, is mostly influenced by two external factors – the economic crisis and the war in Ukraine,” Hristov begins. “They dominate all aspects of the political and economic life in the country.”
Speaking of politics, it looks like Bulgaria is still on a thorny path. “We have early general elections slotted for April 2, following a series of several extraordinary elections in the past couple of years. Indeed, we have had more caretaker governments than regular ones, with some parliaments dissolving after only a few months,” Hristov explains, adding that the situation is still problematic. “We might see another early election before the year is up. Taking all of this into account, it is no wonder that the legislative process has all but stopped.”
This legislative halt came at a thoroughly inopportune time. “The big challenges for Bulgaria right now are the Eurozone and Schengen zone entries,” Hristov says. “For these to become a reality, a comprehensive set of legislative measures must be undertaken and the national authorities and regulators must be reformed and reinforced. For example, amendments need to be made to the commercial law to provide for the personal bankruptcy of individuals, updates of laws that govern the financial system are needed concerning the National Bank and anti-money laundering, and an overall judicial reform is required,” he elaborates.
And before Bulgaria adopts the Euro currency certain economic conditions must also be met. “The annual inflation rate of 13% is above the required 3%, and this has also contributed to the Eurozone entry date being pushed back tentatively from January 1, 2024, to January 1, 2025.” The Bulgarian economy is facing a difficult period, primarily due to the current geopolitical context. “Following a relatively good 2022 that saw a 4% GDP growth, the projections for this year are almost halved and are between 1% and 2%. On the flip side, however, our annual inflation projection stands at 7-8% for the end of 2023, which is lower than the 13% of 2022 – giving us room for hope,” Hristov says.
Finally, even within such a framework, there are business sectors that are performing admirably. “Exports are a huge driver of the economy, especially business-to-business services, primarily in the IT services sector,” Hristov says. “The Bulgarian IT sector is robust and is, to an extent, sheltered from the overall turmoil. It clearly outperforms all others and is attracting significant investments, garnering attention from numerous funds,” he says, pointing, as an example, to the presence of VMWare and SAP as major employers of local software developers and engineers.”
In addition to IT, Hristov reports there is an uptick in transportation and logistics as well. “There is a huge demand for (and peak in) construction work, especially related to logistics. We have seen several interesting transactions lately, many with an international aspect to them.” As retail switches from physical to online, Hristov stresses the importance of having a strong infrastructure to support supply channels. “Even if transportation and logistics have a similar level of growth as last year, the growth in terms of volume will be fantastic,” he concludes.