Bulgaria Presentation For Japanese Investors

Adamant Capital Partners AD

October 2008

Introduction toInvestment opportunities in Bulgaria

Sofia, December 2008

Contents

Trade relations EU-Japan;

Business optimization opportunity;

Bulgaria overview;

Main strategic advantages of Bulgaria;

Case study- Yazaki Bulgaria EOOD;

Trade relations EU-Japan

The compound GDP of EU and Japan amounts of around 40% of the total World GDP

The total trade between EU and Japan is around € 125 bn on an year base

The EU exports to Japan in 2007 are 43.8 bn (3.5% from the EU total exports)

The Japan exports to EU in 2007 are 78.1 bn (5.5% from the total Japan exports)

The main sectors of Japan exports to EU are:

o Machinery

o Electrical Machinery

o Transport equipment

o Chemicals

o Manufactured Goods

Business optimization opportunity

Japanese companies invest in production plants in Bulgaria

Bulgarian subsidiaries ofJapanese companies start tosell their goods on thecommon EU market

Main advantages for Japanese companies to produce in Bulgaria:

• Part of the Common EU market • Cheapest Cost of Energy• Cheapest Labor cost• Corporate tax 10%• Cheapest transport (via Danube river)• Faster time to EU market

EU COMMON MARKET

Bulgaria Summary

• Member of EU;

• Strategic location;

• Lowest labor cost in EU;

• Availability of qualified work force;

• Lowest energy costs in EU;

• Lowest corporate tax in EU: 10%;

• On the road of raw materials from Russia and Kazakhstan;

Bulgaria overview

Map 1: Europe & Bulgaria

Bulgaria overview

Full member of EU since 01.01.2007. The Country’s territory is 110 910 sq. km. and it’s population is 7 680 000 people

Adopted currency board in 1997 and fixed the exchange rate of the local currency (Lev) to the Euro

Investment grade credit rating (BBB-)

Average growth of GDP of 6% per year

Average monthly salary of 250 euro

Main sectors of the economy:

o electrical engineering, electronics, automotive, real estate, mechanical engineering, food & beverage, IT & telecommunications, Business process outsourcing, energy and non metallic mineral products

Bulgaria overview (cont.)

• Bulgarian GDP has grown steadily since 1999 mainlyas a result of increased consumer demand, domesticand foreign direct investments and increased exports

• Bulgarian GDP is converging to the EU 27 average0.0 50.0 100.0 150.0 200.0 250.0 300.0

Bulgaria

Poland

Lithuania

Slovakia

Portugal

Czech Republic

Cyprus

EU (27 countries)

Spain

Germany

Finland

Denmark

Austria

Ireland

GDP Per Capita, % of EU 27 in PPS 2007

20.0

25.0

30.0

35.0

40.0

45.0

50.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f

Bulgaria, real GDP growth, % YoY

EU27, real GDP growth, % YoY

Bulgaria, GDP per capita, % of EU 27 in PPS

Source: Eurostat

Source: ACP Research; Eurostat


Source: Bulgarian Investment Agency Source: Bulgarian Investment Agency

Country

Corruption Percentage

Index, 2007 Procedures, no. Duration (days)

Unemployment

rate, %, 2007

Average gross monthly

salary, Q4 2007, EUR

Bulgaria 4.1 9 6.9 233

Croatia 4.1 8 11.2 896

Cz. Rep. 5.2 10 6.6 782

Hungary 5.3 6 8.1 802

Poland 4.2 10 14.9 690

Romania 3.7 6 6 474

Slovakia 4.9 9 10.8 550

Source: Transparency International, World bank, EIU, National Banks, Statistics offices & Investment agencies

31

14

25

Business start-up

32

40

17

16

GVA by sub-sectors, 2006 FDI inflow 2002 – 2007, mln USD

0% 10% 20% 30% 40% 50% 60% 70%

Agriculture

Mining & quarrying

Construction

Industry

Finance

Transport

Other services

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

2002 2003 2004 2005 2006 2007


Matrix of inward FDI performance and potentialHigh FDI performance Low FDI performance

High FDI potential Bahamas, Bahrain, Belgium and Luxembourg,Botswana, Brazil, Brunei Darussalam, Bulgaria,Chile, China, Costa Rica, Croatia, Cyprus, TheCzech Republic, Denmark, Dominican Republic,Estonia, Finland, France, Hong Kong (China),Hungary, Ireland, Israel, Kazakhstan, Latvia,Lithuania, Mexico, the Netherlands, Panama,Portugal, Qatar, Singapore, Slovakia, Slovenia,Spain, Sweden, Switzerland, Trinidad and Tobago,Tunisia and Viet Nam.

Argentina, Australia, Austria, Belarus, Canada, Germany,

Greece, Iceland, Islamic Rep. of Iran, Italy, Japan, Jordan,

Kuwait, Lebanon, Libyan Arab Jamahiriya, Malaysia, Malta,

New Zealand, Norway, the Oman, the Philippines, Poland,

the Republic of Korea, the Russian Federation, Saudi

Arabia, Taiwan Province of China, Thailand, Ukraine,

United Arab Emirates, the United Kingdom and the United

States.

Low FDI potential Albania, Angola, Armenia, Azerbaijan, Bolivia,

Colombia, Congo, Equator, Ethiopia, Gambia,

Georgia, Guyana, Honduras, Jamaica, Mali,

Mongolia, Morocco, Mozambique, Namibia,

Nicaragua, Nigeria, Peru, Republic of Moldova,

Romania, Sudan, Syrian Arab Republic, TFYR

Macedonia, Togo, Uganda, the United Republic of

Tanzania and Zambia.

Algeria, Bangladesh, Benin, Burkina Faso, Cameroon, the

Democratic Republic of the Congo, Cote d’Ivoire, Egypt, El

Salvador, Gabon, Ghana, Guatemala, Guinea, Haiti, India,

Indonesia, Kenya, Kyrgyzstan, Madagascar, Malawi,

Myanmar, Nepal, Niger, Pakistan, Papua New Guinea,

Paraguay, Rwanda, Senegal, Sierra Leone, South Africa, Sri

Lanka, Suriname, Tajikistan, Turkey, Uruguay, Uzbekistan,

Venezuela, Yemen and Zimbabwe.Source: UNICAD

Main strategic advantages of Bulgaria

Location;

Low operational costs; Availability of experienced workforce;

Favorable taxation system;

Industrial zones and cheap plots suitable for Greenfield industrial investments (the example of Russe Region);

Market dimension (EU common market);

Government incentives for investments;

Location

...5 out of 10 Pan European Corridors pass trough Bulgaria…

• Pan-European Transport Corridor № 4 (Dresden/Nurnberg – Prague – Vienna/Bratislava – Budapest

– Kraiova – Constanta/Sofia –Thessaloniki/Plovdiv – Istanbul)

• Pan-European Transport Corridor № 7 (Internal waterway Rein-Main-Danube)

• Pan-European Transport Corridor № 8 (Durres – Tirana – Kaftan/Kafasan – Skopje – Deve Bair –

Gyueshevo – Sofia – Plovdiv – Bourgas – Varna)

• Pan-European Transport Corridor № 9 (Helsinki – Saint Petersburg – Moscow/Pscow – Vitebsk –

Kiev – Lyubashevka – Kishinew – Bucharest – Rousse – Dimitrovgrad – Alexandroupolis)

• Pan-European Transport Corridor № 10 (Salzburg – Lyubliana – Zagreb – Belgrad – Nish – Scopje –

Veles – Thessaloniki: with divergence Nish – Sofia)

Location (cont.)

Raw materials arrive to Black Sea

via Volga river, then cross Black Sea

and continue via Danube river

14

Raw materials arrive in Bulgaria by ships (via Volga

river, Black Sea and Danube) from Russia and other

rich raw materials countries

Production is done in factories near Danube

river in Bulgaria

Final production is transported via

Danube river to Western Europe

Location (cont.)

Map 3: Pan European Transport Corridors

Location (cont.)

- Strategic location

- Availability of sea, river and

road transport

- Within 500 km from Sofia live

over 90 mln people

- A network of international

motorways crosses the country

- Presence of vital connections to

the countries of Western Europe,

Russia, Minor Asia, the Adriatic,

the Aegean and the Black Sea

Map 2: Pan European Transport Corridors in Bulgaria

• Bulgaria is located on the road of the raw materials coming from Russia andKazakhstan

• Pan-European Transport Corridor № 7 (Internal waterway Rein-Main-Danube) isparticularly important for production sites in Bulgaria

• The production materials arrive from the raw materials rich countries via Black Seaand Danube river; production is done in plants near Danube river; products and goodsare transported via Danube river up to Hungary, Austria, Germany and other Europeantarget markets

• Bulgaria is in the middle between the raw materials market (east) and the consumermarket (west); it is a convenient production destination for Japanese companies

Location (cont.)

Low labor costs

• Average gross monthlywage EUR 256

• 22% of the populationholds University Degree

• Educated workforce andavailability of specialists inthe field of manufacturingsector

in euro Total Public Sector Private sector

Total 2,642 3,199 2,434

Food Products, agricultural and

fisheries product processing 1,855 2,426 1,744

Mining and quarrying 4,352 6,219 3,702

Manufacturing 2,350 3,973 2,313

Electicity, gas and water supply 4,567 4,584 4,532

construction 2,172 3,020 2,147

Trade, repair of motor vehicles and

personel and household goods 2,140 4,124 2,133

Hotels and restaurants 1,641 2,236 1,606

Transport, storage and communication 3,266 3,489 3,107

Financial intermediation 5,853 7,379 5,788

Real estate, renting and business activities 3,070 3,077 3,069

Public administration, compulsory social security 3,906 3,906 X

Education 2,657 2,631 3,458

source: National Statistical Institute

Average annual wages and salaries of the employees under

labour contract by economic activity groupings in 2007

Low energy costs (cont.)

Natural gas prices for large industrial standard consumers

418 600 GJ per year (EUR per GJ); All taxes included

2007

EU (27 countries) 8.7500


Euro area 8.6800

Belgium 7.4200

Bulgaria 5.3845

Czech Republic 7.0880

Denmark 7.1765

Germany 11.2100

Estonia 5.0624

Latvia 6.0410

Lithuania 6.4643

Hungary 10.3256

Poland 8.0197

Portugal 5.4300

Romania 8.3394

Slovenia 8.8300

Slovakia 8.8820

Turkey 7.8411

source: Eurostat

Source: Eurostat

Low energy costs (cont.)

Electricity prices for large industrial standard consumers

24 GWh per year (EUR per kWh); All taxes included

2007



Euro area 0.0937

Belgium 0.0939

Bulgaria 0.0588

Czech Republic 0.0793

Estonia 0.0447

Italy 0.1283

Cyprus 0.1209

Latvia 0.0519

Lithuania 0.0632

Hungary 0.1012

Malta 0.0617

Poland 0.0688

Romania 0.0894

Slovenia 0.0813

Slovakia 0.1053

Turkey 0.0666

Norway 0.0621

source: Eurostat

Source: Eurostat

Favorable taxation system

20

%

Austria 25

Bulgaria 10

Belgium 34

Czech Republic 21

Estonia 21

France 34.34

Germany 30-33

Greece 25

Hungary 20

Italy 27.5

Ireland 12.5

Poland 19

Slovakia 19

Slovenia 22

Spain 30

UK 28

Corporate tax

• Corporate tax: 10%; Personal tax: 10%;

• 5 year taxation exemption for companies, whoinvest more than 5 mln euro in one year period.The exemption is possible in the following sectors:agriculture, manufacturing industry, production,high tech, infrastructure;

• Interest expenses are deductable up to 75% fromearnings;

• Taxation of dividends: 5%;

• Infragroup earnings are not subject to any sort oftaxation;

Industrial zones (the example of Russe Region)

• Area of the Region: 2,803 sq. km.

• Population: 253,008 people

• Unemployment rate: 11,4%

• Average annual wage (EUR): 1,885

• GDP of the Region: EUR 616.1 mln

• GDP Per Capita: EUR 2,398

• Pan European Corridors 7 and 9 converge in Russe. River transport via Danube available

Map 4: Bulgaria and Russe Region Source: Bulgarian Investment Agency

Labor forceBreakdown of labor force in Russe Region 2007

Labor force

Total ('000) 118.9

Employed ('000) 105.4

Unemployed ('000) 13.6

People not in labor force ('000) 104.8

Activity rate (%) 53.2

Employment rate (%) 47.1

Unemployment rate (%) 11.4

Educational level of employed people (%) 2006

Total 100

Higher education 25.8

Upper secondary

Total 62.2

Technical and Vovational 53.2

Lower Secondary or lower 12

Industrial Park Russe (Russe region)• The city of Ruse is an ancient cultural

and transport center of Bulgaria andthe Balkans

• Convenient transport connection between Western Europe - South-eastern Europe - Asia and the Caucasus countries (Armenia, Azerbaijan)

Pic 2: Port Russe

Pic 3: Port RusseMap 5: Transport Corridors

Industrial Park Russe (cont.)

• Area: 64 ha;

• Water, electricity and gas are available

• Master Development Plan: available

• Geotechnical survey: available

• Immediate proximity to Port Russe

(the biggest Bulgarian port on Danube)

• Access via road, Railway and water

• 70 km from the airport of Bucharest

Map 6: Port Russe and Industrial Zone Russe

Industrial Zone Russe

Market dimension (EU common market)

• Bulgaria is full member of EU since 2007;

• It is part of the common EU market for goods and services;

• Production made in Bulgaria is not subjected to any kind of customfees or other taxes related to access to the EU market;

• Bulgaria becomes attractive investment destination, due to thelow cost of production and the free access to the EU market;

Government incentives for investments

• The structure of the Bulgarian economy ischaracterized by strong inflow of FDIs

• In periods of global positive economical trend,the Bulgarian economy enjoys strong growthand dynamic investment activity

• In periods of global downturn, as the currentone, the risk of economical slowdown remainshigh

• For this reason, the Government is favorableto sustain business activities and to promoteFDIs with different investment incentives liketaxation exemption and others

Source: Bulgarian Investment Agency

Source: Bulgarian Investment Agency

Bulgaria Real GDP growth, 2002-2007;

Total GDP- EUR 28.9 bn (2007)

0

1

2

3

4

5

6

7

2002 2003 2004 2005 2006 2007

FDI to GDP, %, 2006 – 2007 E

0

5

10

15

20

25

2006

2007

Case study- Yazaki Bulgaria

• Yazaki Bulgaria EOOD is a subsidiary of Yazaki Corporation – Japan;

• Core business of Yazaki Corporation: wire harnesses and other components for theautomotive industry;

• The company has plants in 39 countries and over 200 000 employees all over the World;

• It produce in Bulgaria electrical wire harnesses for the automotive industry;

• The main export markets of Yazaki Bulgaria EOOD are France and Spain;

• The production plant of Yazaki Bulgaria is located in Industrial zone Yambol; The wholeproperty of the company is 50 000 sq. m. and the TBA of the factory is 24 250 sq. m.

• Currently there are 1 800 people employed in the producing plant

Case study- Yazaki Bulgaria (Cont.)

Main reasons for Yasaki to set up a factory in Bulgaria:

• Overall competitive costs;

• Availability of proper labor force;

• Stable political environment;

• Fast administrative services;

• EU membership of Bulgaria;o Free travel of people; transportation of materials, goods and

equipment within EU;

Contact DetailsMailing Address:

Contacts:

CEO

COO

Adamant Capital Partners AD

76A, James Bourchier Blvd.

Hill Tower Building

1421-Sofia, Bulgaria

T: +359 2 963 4510, +359 2 422 5970

T (UK): +44 20 33 84 1302

F: +359 2 422 5973

Mr. Bojidar Kounov

T: +359 2 422 5972

M: +359 884 7777 08E: [email protected]

E: [email protected]

Mr. Miroslav Velikov

T: +359 2 422 5992



Securities Brokerage

Research

Corporate Finance

Advisory

EU Funds

Mr. Nikolay Stoev

T: +359 2 422 5994



Mr. Deyan Nikolov

T: +359 2 422 5996



Mr. Jivko Stoimenov

T: +359 2 963 3075, +359 2 422 5970

F: +359 2 422 5972


Ms. Radostina Tsvetanova

T: +359 2 963 3075, +359 2 422 5980

M: +359 898 572520E: [email protected]

mailto:[email protected]










Bulgaria Presentation For Japanese Investors

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