President Rosen Plevneliev sees Bulgaria as an island of stability within a troubled continent. The country has a low budget deficit and limited government debt in comparison with fellow EU members. Despite prolonged stagnation, it has required no bailout, unlike nearby Serbia, Romania and Greece.
But a new FT Special Report finds that beneath this stability lie problems around the state of democracy, organised crime and structural economic reform.
The post-communist transition has left its legacy and Bulgaria is still the EU’s poorest country with the lowest average wage.
Satisfying Brussels hasn’t been easy and the promised advantages of EU membership haven’t fully materialised. Bulgaria has met all the technical conditions to joining the Schengen area but opposition from Holland, Germany and Finland keep the country out on grounds of corruption, organised crime and a weak judicial system.
Absorption of EU funding is a further problem, with Bulgaria using only 30 per cent, €3.9bn, of the total resources available to it in the first five years of membership.
The hope was to win funding for transport infrastructure and position Bulgaria as a hub between the Middle East and central Europe. The funding was slow to come but after proving transparency in public procurement, Bulgaria is seeing EU cash flow in, with 90 per cent of EU-backed infrastructure contracts signed. The first upgrade will be the 380km motorway linking Sofia with the Turkish border, serving 6,000 trucks daily.
Between 1996 and 2011, Bulgaria received some €40bn in foreign investment with the country’s cheap labour, stable currency pegged to the euro, flat 10 per cent tax rate and geographical position attracting FDI in key clusters Before 2008, much of this money went into real estate and construction but investors are now shifting away to export-oriented manufacturing.
For example, car manufacturing industry is now doing well. Some 9,000 people are employed in the sector, which made €1bn of sales in 2011, constituting 4 per cent of total exports. Johnson Controls, the car parts maker, has an electronic research centre in Sofia which is one of the group’s largest, and South Africa’s ALC has a plant nearby, producing interiors for BMW, Mercedes and Nissan.
Viticulture is another rising sector, returning to Bulgaria as the country sheds the the cooperatives and wineries of the Soviet era. In the 1980s, the country was the world’s second largest wine producer but in the turmoil following the collapse of Communism business people lost interest in the industry. Wine producers have negotiated with many smallholders to resurrect vineyards and last year, Bulgaria produced 108m litres of wine, up 4.9 per cent, with Russia the main importer and some signs of a breakthrough into the Asian wine market.
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