Economic and political instability are pushing foreign investors away from the country, a poll shows

This is what else the report on the effect of the investment legislation published for public discussion shows

Industry / Bulgaria , Finance
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The problematic factors that repel foreign investors are the economic and political crisis in Bulgaria. This is stated by 83.3% of the respondents polled for the preparation of the Report on the ex-post evaluation of the impact of the Law on the Promotion of Investments (PI) and the rules for its implementation, published for discussion on the Public Consultation Portal.

Among the specifically mentioned factors are the weak voice of Bulgaria in the EU when discussing regulations or ad hoc measures, the protection of intellectual property, the theft of companies and the dubbing of brands, rigged public procurement, the lack of good economic diplomacy and a strategy to attract investors by sector. Among the most popular answers are the problems with the judicial system and corruption (66.7%), the lack of well-developed and maintained infrastructure and insufficient state incentives, the results of the survey also show.

According to the survey, the leading factor for choosing the country is its liberalized access to EU markets. Half of the respondents answered that the strategic geographical position of Bulgaria, as well as the low tax rates, play a decisive role in the choice of the country compared to other countries. Significantly, none of the respondents answered that the country is attractive with its incentives to promote R&D investments, the report points out.

The report assesses the effects of the implementation of the national legal framework in the area of investment promotion and covers the period January 1, 2018 - December 31, 2022. BTA presented part of the data and conclusions in the report:

The flow of foreign direct investment

The lowest value of the flow of foreign direct investments (FDI) in Bulgaria was in 2018, which was, however, followed by a significant increase in the indicator in the following two years. The amount of FDI inflows are respectively EUR 1,639.4 million in 2019 (a growth of 69.45 percent compared to the previous year 2018) and EUR 2,974.2 million in 2020 (a growth of 81.4 percent compared to the previous year 2019). In 2020, despite the crisis caused by the global pandemic, a peak in the flow of FDI in Bulgaria for the last 10 years is marked. In the following year 2021, there is a significant decline, but in 2022 the amount of FDI flow reaches 2378.7 million euros (a growth of 48.66 percent), with these values approaching the highest recorded in 2020

Gross fixed capital formation in the national economy

In 2022, gross fixed capital formation at current prices shows "growth" due to inflation. In 2022, the gross fixed capital formation at comparable prices from 2015 was 7.8 percent less than in 2018. When analyzing the dynamics of the indicator and more specifically the registered decline during the 2020 period – 2022 should take into account the impact of the worsening economic situation in Europe after the COVID-19 pandemic and the war in Ukraine, the authors of the report indicate.

Expectations for the current financial situation in 2023

Half of those surveyed within the framework of the report's preparation answer that investment costs will be increased in the current year, while a third of them find that costs will remain at the same levels compared to the previous one. The answers received can be interpreted in two ways, the authors of the report point out. According to them, on the one hand, the given answers can confirm the negative expectations that the investment activity may become "more expensive" in 2023, given the growing inflation. On the other hand, the answers can be seen as a confirmation of the investors' intention to expand the existing productions and services, taking into account the good investment climate and the positive results of the companies' activities in Bulgaria.

The incentive measures

In the first place in the ranking of all incentive measures is the financial support for the partial recovery of the mandatory insurance and other contributions of the newly appointed people in connection with the investment. It is the only measure that received the maximum 4 points as attractive and there is not a single opinion about it as weakly attractive, the report states. This measure is the most preferred of the financial measures provided under the ZNI and according to the Report on Investments in Bulgaria in 2022 prepared by the Bulgarian Investment Agency. In the next place are the measures related to the transfer of ownership or use of properties with built infrastructure without an auction or competition at market or lower prices and financial support for building technical infrastructure, which received 2 points each as very attractive and attractive in an equal number of points for the other categories. In third place are the administrative service in shortened terms and individual administrative service and the financial support for acquiring a professional qualification, being evaluated with 3 points each as attractive and with an equal number of points in the other categories.

Degree of effectiveness and achievement of the objectives of the law

With regard to the first objective of the law, for the achievement of which a question was asked in the survey in the framework of the preparation of the report, which is an increase in investment for technological development in industries and services with high added value and the creation of new high-performance jobs, the answer, which received the most points is that the law does not achieve it. The authors of the report note, however, that with the changes in the Regulations from 2020, actions were taken to refine the scope of the incentive measures, and the investment incentives for some economic activities were reduced, precisely with the aim of making better use of the public resource to promote production and services with high added value. The second goal, on which the study is focused, is improving the investment climate in the country and reducing regional disparities in socio-economic development - for it, there are an equal number of points that the same has been achieved to a very small extent or has not been achieved. However, for the achievement of this goal, other factors from the external environment are also essential, such as the level of unemployment, the degree of qualification of the workforce, as well as the demographic structure of the region. As for the third objective: counteracting the negative trends in investment activity and employment, according to the prevailing opinion, the one that received the most points was that it was partially achieved.

The certified projects 2018 – 2022

The data show that within the research period the number of certified investment projects is relatively constant. It fluctuates with plus - minus 3 pcs. During the first two years of the five-year period under review, there was an increase in certified projects. The largest number of certified projects is in 2020 – 34, and in 2021 and 2022 they decrease, albeit relatively smoothly. The impact of external factors, such as the pandemic crisis and the war in Ukraine, affecting economic activity in the EU is not insignificant for these trends, the report states.

For the entire studied period, the share of class A investments is the largest - 125 units. or 83.9 percent of the total number of certified investment projects, which is 149. As a dynamic, class A investments follow the general trend of certified investment projects – growth until 2020, followed by a decline in 2021 and 2022.

Investments by sector

Within the entire studied period, the largest share of investments is in the "Manufacturing industry" sector - 88 units. or almost 54 percent of the total number of certified investment projects (163 items), which is reported by the authors of the report as a positive phenomenon. This is followed by the sectors "Transport, warehousing and post" with 14.1 percent, "Creation and distribution of information and creative products; Telecommunications" with 10.4 percent, etc.

Certified projects in regions with high unemployment

The number of certified investment projects in regions with high unemployment remains modest in absolute and relative terms – 23. for the entire research period or 15.4 percent of the total number of certified investment projects (149 units). The indicator points to an unsatisfactory result regarding the employment promotion policy in the most problematic (in this respect) regions of the country, the report states. These results are influenced by the demographic processes in the country, as well as the availability of qualified workers and employees, necessary for the implementation of the investment projects. Investor interest should also be taken into account in the analysis. A general conclusion that can be formulated based on the analyzed information is that investment activity is highest in the more developed regions of the country. Despite the lower thresholds for certification in municipalities with high unemployment provided for in the ZNI and the Regulations to the Law, investment decisions in such areas are made more difficult.

The volume of investments declared during the certification shows significant fluctuations within the studied period - a decrease in 2019 (compared to 2018), an increase in the following two years (2020 and 2021) and a decrease in 2022. Missing however, data on the volume of investments actually made in the implementation of the relevant projects, the authors of the report indicate.


The number of planned certification jobs increased in the first three years of the study period (2018 - 2020). In 2020, their number increased approximately 1.5 times compared to the previous year 2019. The upward trend was followed by a serious decline in 2021 and a slight increase in 2022.

The number of planned jobs by certified investment projects in regions with high unemployment is insignificant in absolute and relative terms - 1,822 units. for the entire research period or 12 percent of the total number of planned jobs during the certification (15,203 units).

More than half of the certified investment projects (51 percent) are in high-tech production/services for the entire study period. This can be indicated as a contribution to the construction of a knowledge economy in our country, the report notes.

Funds paid from the budget of the ministries of economy and innovation and growth

Within the research period, the amount of funds paid from the budget of the Ministry of Economy/Ministry of Innovation and Growth (as the next competent authority) increased more than three times - from BGN 5.66 million in 2018 to BGN 18.59 million BGN in 2022. The most significant share of them is the funds for infrastructure projects. The amount of funds paid out from the budget of line ministries for infrastructure projects increased nearly four times - from BGN 4.19 million in 2018 to BGN 15.55 million in 2022. This dynamic can be assessed as positive, but when compared with previous periods, the amount is unsatisfactory, the report states. According to data from the previous follow-up evaluation of the impact of ZNI (2005-2008), for example, the financial support of infrastructure projects in 2007 (the first year of our membership in the EU) amounted to BGN 14.21 million. in the period 2007 - 2020, inflation in the country (according to the Consumer Price Index) was 29.5 percent. Thus, the 9.91 million BGN provided in 2020 (in nominal terms) for infrastructure projects is actually 7.65 million BGN in real terms (at 2007 prices). In other words, the funds from the Ministry's budget of the Economy/Ministry of Innovation and Growth for infrastructure projects in 2020 amounted to 53.8 percent of those in 2007, summarize the authors of the report.

Within the entire studied period, the largest share of infrastructure projects for which funds were paid from the budget of the relevant ministries is in the "Manufacturing Industry" sector, followed by the "Transport, Warehousing and Posts" sector.

The largest number of infrastructure projects for which funds have been paid from the budget of the Ministry of Economy/ Ministry of Innovation and Growth is in the highly developed South-Central region - 13 nos. (41.9 percent of the total number). The South-West region follows with 7 units, the South-East and North-East regions - 4 units each. and the North Central Region - 2 pcs. In the North-West region, funds were paid for one infrastructure project, and a total of 12 projects were certified in it for the entire period under review, with only two claiming the use of financial incentive measures for infrastructure construction.



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