Bulgaria as an Investment Location Interview with Ivo Konstantibov, Commercial Counselor and Trade Attache Bulgarian Embassy, Washington, DC

Johnson (JGSM) 2-Year MBA (2MBA) Class of 2015 students.
Bulgaria as an Investment Location Interview with Ivo Konstantibov, Commercial Counselor and Trade Attache Bulgarian Embassy, Washington, DC

Bulgaria anticipates incremental growth, particularly in the IT sector, and has benefited from accession into the European Union.

by Krasina Koleva, MBA ’15

Overview: Bulgaria is a small country located on the Balkans that borders Romania, Greece, Turkey, Macedonia, Serbia and the Black Sea. In 2011 the total population of the country was 7.3 million and the estimated GDP per capita for 2015 is $17,869. The country is a member of the EU, NATO and WTO.

1. Ivo, can you introduce yourself and provide a quick overview of your background?

I am Ivo Konstantinov. I head the commercial and economic office at the Bulgarian Embassy of Washington D.C. I work in 14 economic areas covering a range of economic activities including technology, R&D social enterprise and developments. My area of operation is mainly the US East Coast. Part of my job is to generate US investment to Bulgaria and raise capital for various investment projects. Prior to my current position, I have been working in seven different European countries as a trade representative in the Government sector, imports-exports executive and business developer in the private railways and plastics industries.

2. What are the key industries for the Bulgarian economy?

Some of the key industries are copper, zinc, gold mining, electricity production, garment and fashion, food processing and automotive components. Other popular ones are crude oil processing, agriculture, wheat and sunflower products. Tourism is also a growing industry taking up about 15 % of GDP.

The fastest growing industries are software and new start-up development. Automotive components manufacturing is also growing.

3. What industries have attracted most foreign investment?

Insurance, banking, mining, garments manufacturing and automotive components manufacturing have attracted most foreign investment.

4. What are key factors that compel foreign investors to invest in Bulgaria?

There are three main factors that attract foreign investment. The first one is the excellent tax environment: Bulgaria is a tax haven with only a 10% flat corporate income tax rate. The second factor is the availability of educated workforce and engineers in particular and medical staff. The third and final factor is Bulgaria’s political and macroeconomic stability and its strategic location in the middle of, and equally close to, three continents. The country has the second lowest debt to GDP ratio and product deficit to GDP ratio in Europe.

5. What are the strengths of the Bulgarian economy and its weaknesses?

The strengths of the Bulgarian economy are its macroeconomic stability and favorable legislative environment. The weaknesses are scarcity of capital, lack of entrepreneurship and management capacity. The incomplete judiciary reform has also been an issue as well as the lack of access to investment capital.

6. Bulgaria has joined the European Union in 2007. It has been 8 years. How do you see this period for the country? What was the impact of the Bulgarian accession to the European Union (EU) so far?

The accession to the European Union has been an overwhelming success in many areas. For example, exports were boosted and corruption has been controlled. Many of the rules established by the EU have been a success, and led to an influx of EU companies. Infrastructure has also been improving. Access to European grants has brought us closer to EU standards. Most of these grants have gone into the labor market for HR training and transitional assistance, in infrastructure and in agriculture.

7. When do you expect that the country will adopt the euro?

We meet all of the criteria to join the Euro zone. We have a very low inflation and debt and have met most of the Maastricht criteria covered. The current problems with Greece and Spain have led to concerns of new members joining the monetary union. There is also a complicated transition period of transition and a currency “waiting room” known as ERM1 and ERM2 that needs to be passed before full introduction of the EUR as a currency in a new-Eurozone member-state.

The question is whether we want to join the monetary union now with the current problems experienced by some of the southern neighbors. If we had joined, we would have probably needed to participate in the bailing out of Greece, for example, which has significantly higher GDP per capita than us.

8. How does the world see Bulgaria?

The world sees us as a thriving new European economy, an unsaturated market, a key logistical location and a good manufacturing base. However, they also recognize the fact that we have still some challenges to tackle. We have a troubled past and a strong energy dependency especially in terms of oil and gas. Matters of corruption and guaranteeing the efficient functioning of the judiciary through reforms have yet to be improved.

9. What is the perception of Bulgaria in the United States?

The perception of the country in the US is more or less along the same line as in Europe. The fact that we have participated in US- led coalitions in Iraq and Afghanistan though has brought us additional positive momentum.

The US media has raised some concerns about our dependence on Russian oil and gas which are still not entirely unjustified.

10. What do you see as the country’s key areas of growth?

The IT sector is probably the number one key area of growth. Medical and life sciences also have the potential to be key areas of growth. Agriculture, organic farming and livestock are other potential areas.

11. There has been some political instability in Bulgaria with the premature change of government in the last years. How do you see this impacting the economy and foreign investment?

Government has a small impact on the economy and it is mostly tied to energy and infrastructure. More than 75% of businesses and industry assets in the country belong to the private sector. We have a well-established legal system which does not change with the change of government. This provides a framework for foreign investment to operate in Bulgaria. The premature change of government testifies for a development of civil society in the country where people are willing to go out on the streets and protest when they are not happy with their government. However, the change of power from one minister to another did not significantly impact the economy.

12. What is the perception about the current Bulgarian government?

The perceptions of the current Bulgarian government are overwhelmingly positive. There is also a cautious optimism with regards to judicial reform and energy diversification.

13. Europe has been slowly recovering from the recession. Bulgaria has experienced a similar slow growth. What are your projections for the country?

Accelerated growth is not the only indicator of the health of the economy. We will likely continue to grow at a slower rate than emerging Asian markets from a sheer stock-investor’s perspective. Yet Bulgaria will continue to grow incrementally and organically in contrast to the US where the monetary policy is much more relaxed.