BULGARIA – PROSPECTIVE LOCATION FOR BULGARIA – PROSPECTIVE LOCATION FOR FOREIGN DIRECT INVESTMENTS FOREIGN DIRECT INVESTMENTS

Elena PISHTOVKOLEVA, Director Investment PolicyElena PISHTOVKOLEVA, Director Investment PolicyMinistry of Economy and EnergyMinistry of Economy and Energy

27-2827-28 November November 20020077

CONTENTSCONTENTS

FDI StatisticsFDI Statistics Investment Competitiveness of BulgariaInvestment Competitiveness of Bulgaria Prospective SectorsProspective Sectors IncentivesIncentives Industrial ZonesIndustrial Zones

High and constantly rising economic growth Bulgaria is among CEE leaders Industry – main growth engine

Real GDP Growth

5.4

4.14.5

6.66.2 6.1 6.1

6.5

3.9

2.62.62.82.9

1.7

2.42.0

1.2 1.3

6.2

5.0

1.0

3.0

5.0

7.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

%

ЕU-25 BulgariaSource: NSI, EUROSTAT

MACROECONOMIC TRENDS

Source: Мinistry of Finance

Since 2000 the credit rating of Bulgaria has been raised over 25 times.

Agency Data

Foreign currency Local currency

Long-term

Short-term Outlook

Long-term

Short-term Outlook

Japan Credit

Rating Agency27.06.2007 BBB+ - Stable А- - Stable

Standard& Poor’s 26.10. 2006 BBB+ A-2 Stable BBB+ A-2 Stable

Fitch 17.08.2005 BBB F3 Stable BBB+ - -

Moody’s 23.02.2007 Baa3 - Positive Baa3 - Stable

CREDIT RATINGS

MACROECONOMIC TRENDS

Source: Bank Austria Creditanstalt

FDI, Share in GDP (% )

11.5

4.7

3.0

6.6

3.8

8.2

4.5

6.3 5.7

3.0

11.0

5.0

3.0

4.94.1

4.74.9

4.2 3.4

2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

BG CZ HU LV PL RO UKR CRO SL TR

2006 Е

2007 F

FOREIGN DIRECT INVESTMENT

FOREIGN DIRECT INVESTMENTFOREIGN DIRECT INVESTMENT

FDI, EUR mln.

137.3570.2 605.1

866.01 103.3

903.4 980.0

1 850.5

2 735.93 103.3

4 364.0

0500

1 0001 5002 0002 5003 0003 5004 0004 500

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Source: BNB

1999 2000 2001 2002 2003 2004 2005 2006 2007*

Greenfield+Expansion Privatization

Source: BNB, IBA

88666611 000033

903903998080

1 8561 856

22 736736 3 3 103103

44 364364 3 3 807*807*

* 1.-9.2007

Record inflow of non-privatization investments in 2005-2007

FOREIGN DIRECT INVESTMENT

Source: BNB

FOREIGN DIRECT INVESTMENT IN BULGARIABY COUNTRIES, %, EUR mln.

1996 – 2006

16.5% (2849)

9.8% (1694)9.2% (1588)

7.6% (1317)

5.3% (912) 5.2% (890)5.0% (856)

4.4% (757)4.2% (723) 4.1% (710)

0

2

4

6

8

10

12

14

16

18

АUSTRIA NETHERLANDS GRECE GREAT BRITAIN ITALY GERMANY BENELUX CYPRUS USA HUNGARY

FOREIGN DIRECT INVESTMENTS IN BULGARIABY INDUSTRY, %

1998 – 2006

FOREIGN DIRECT INVESTMENTS IN BULGARIABY INDUSTRY, %

1998 – 2006

24%

19%

17%

15%

8%7%

10%

Manufacturing

Wholesale, retail trade and repair

Real estate, renting andbusiness activities

Financial intermediation

Electricity, gas and watersupply

Transport, storage andcommunication

Other

FOREIGN DIRECT INVESTMENTS in 2007FOREIGN DIRECT INVESTMENTS in 2007

FDI Flows Geographical Breakdown

(January - September 2007)

Other42.3%

Greece6.1%

Luxembourg6.4%

Cyprus6.2%

Spain6.6%

Austria8.6%

Belgium8.5%

U.K.15.4%

Source: BNB

Foreign Direct Investment Flows by Industry (January - September 2007)

38.3%

27.4%12.8%

1.7%

9.8%

9.9%

Real estate, renting and business activ ities

Financial intermediation

Construction

Wholesale and retail trade; repair of motor v ehicles, motorcy cles and personal and household goods

Manuf acturing

OtherSource: BNB

INVESTMENT COMPETITIVENESS

2.79

2.61

2.88

2.6

2.54

2.59

2.64

2.43

2.44

2.79

3.16

0.98

1.38

0.87

0.83

0.95

1.17

0.91

1.1

0.96

1.04

1.04

1.09

1.16

1.53

1.98

1.98

1.79

2

2.05

2.2

1.79

1.56

Ukraine

Russia

Romania

Lithuania

Hungary

Poland

Latvia

Czech Republic

Estonia

Slovakia

Bulgaria

Financial Score People Score Environmental Score

A.T. Kearney’s Global Services Location Index /March 2007/:Bulgaria - 9th worldwide and 1st in Europe in terms of investment attractiveness

UNCTAD’s World Investment Report 2007: Bulgaria - 7th worldwide in terms of FDI Performance

DELO

ITTE’S

SU

RV

EY

OU

TLIN

E

Products for lower volume nichesGoods and services with average and high level of value addedIn shorter term – investments in energy, transport and infrastructureIn medium and long term – greenfield investment,

acquisitions and merges.

Most prospective sectors: mechanical engineering, electronics, ICT, BPO

THE MAIN COMPETITIVE ADVANTAGES OF BULGARIA

Services sector: IT, RES, transport and tourismIndustry sector: electronics, mechanical and electrical engineering and steel processingPrimary sector: mining and quarrying, petroleum products

MOST PROSPECTIVE SECTORS FOR INVESTMENT

UN

CTA

D’S

SU

RV

EY

(2007-2

008)

OU

TLIN

E

INVESTMENT COMPETITIVENESS

Corporate Tax Rate – 10% as of 1.1.2007

0% corporate tax rate in 138 municipalities with high unemployment rate

10% flat tax rate on personal incomes as of 1.1.2008

Reduction of the social security burden by 6 percentage points as of 2006 and allocation of over USD 384 mln. for use by the business

Increased depreciation rate to 50% for purchasing new production and technology equipment, machinery, software and hardware

TAX POLICY

Source: Employment Agency

over 50% than average

UNEMPLOYMENT RATES - MUNICIPALITIES

over 35% than average

LAW on INVESTMENT PROMOTION

Promoted economic activitiesIn the industrial sector: manufacturing industry, energy production from renewable energy sourcesIn the sector of services: high tech activities in the field of computer technologies; research and development activities, as well as in the field of education and humanitarian health services

Classes of InvestmentClass A – over 36 EUR mln.Class B – over 21 EUR mln.

Opportunities for reduction of the thresholds for:Investments in municipalities with high unemploymentHigh-tech production and services

LAW on INVESTMENT PROMOTION

Incentives

1. Shorter terms of administrative service

2. Individual administrative service

3. Property rights to real estate with state or municipal ownership

4. Financial support for construction of public infrastructure

5. Financial support for training for acquiring professional qualification

Trans-European transport corridors crossing BulgariaTrans-European transport corridors crossing Bulgaria

INDUSTRIAL ZONESINDUSTRIAL ZONES

State or Municipal Ownership Private Ownership

Vocational schools and technical universities in BulgariaVocational schools and technical universities in Bulgaria

• Technical universities • Vocational upper secondary schools with Machine building and Heavy metal industry related programs• Vocational Electrical Engineering upper secondary schools• Vocational Electronics upper secondary schools

635

637322

1671

6677- Number of university graduates, 2005

247

Source: IBASource: IBA

Graduation from universities IT and engineering programs in BulgariaGraduation from universities IT and engineering programs in Bulgaria BA+MA, 2005 BA+MA, 2005

Graduation from universities IT and engineering programs in BulgariaGraduation from universities IT and engineering programs in Bulgaria BA+MA, 2005 BA+MA, 2005

1218

966

833

779

559

513

479

343

987

Informatics

Comminication techniques andtechnologies

Computer systems & technologies

Machine building

Electrical engineering

Automation

Engineering-combined programs

Electronics

Other

Total science graduates – 9000

Total IT & engineering graduates - 6677

Source: IBASource: IBA

Economic activity I quarter II quarter

Total 384 406

Agriculture, hunting, forestry and fishing 273 289

Mining and quarrying 670 708

Manufacturing 358 379

Electricity, gas and water supply 666 721

Construction 333 355

Trade, repair of motor vehicles and personal and household goods 309 315

Hotels and restaurants 259 281

Transport, storage and communication 481 511

Financial intermediation 897 947

Real estate, renting and business activities 363 368

Public administration; compulsory social security 512 550

Education 374 418

Health and social work 409 443

Other community, social and personal service activities 326 336

Average monthly wages and salaries of the employees under labour contract by economic activities in 2007*

(BGN)(BGN)

Source:NSI * - Preliminary Data

Protection of Intellectual Property Rights

the Case of Bulgaria

2007 SPECIAL 301 REPORT

OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE

„Bulgaria has been removed from the Watch List due to improvements in IPR enforcement efforts and passage of

IPR legislation in response to heightened engagement with the United States.”

Map of top foreign manufacturers in Bulgaria

FestoHyundaiSiemensKraftNestleCoca ColaHeinekenViohalcoDanoneCoatsMaser HoldingMelexis

LiebherrSocotabLinde GasSafilFererroInterbrew

American StandardABBEffebiesseHambergerProvimi

Planzee Tizit

Interbrew

LukoilKronospanInterbrew

AmylumActavis

Sisecam

Actavis

ActavisUmicore

TKM Fruit & Juice

Miroglio

Miroglio

VideotonHeineken

Miroglio

Atusa

SparkyBijlsma

Swedish Match

Roca

SolvayItalcementiAcid and FertilizerLinde Gas

SparkyLiftonTexaco (Orgahim)SETRousse Shipyard (German company)

Luxcraft FAF MetalCarlsberg

Knauf

EPIQ

Mayr Melnhof

Arkomat (VW)

Carlsberg

RollmannABB

Palfinger

SKF

Kuhn

Holcim

Chipita

Delta

Nicoletti

Kastamonu Entegre

Bramac

Grammer

Alfa Wood

Dewavrin

Magnetic Head Technology

Provimi

Sevlievo

Lovech

Sopot

Targovishte

Razgrad

Devnya

Varna

Bourgas

Stara Zagora

Parvomay

Kazanluk

Plovdiv

Kostenets

Sofia

BotevgradTrudovets

Nikopol

Pleven

Rousse

Cherven Bryag

Vratsa

Montana

Vidin

Gabrovo

Gabrovo

Elin Pelin

Kazichene

Radomir

Dupnitsa

Stamboliiski

Blagoevgrad

Razlog

Gotse Delchev

Petrich

Haskovo

Nova Zagora

Sliven

Kaspichan

Dolni Chiflik

Dobrich

Silistra

Shoumen

Troyan

Pirdop

Teteven

Gorno Sahrane

Schneider ElectricPerushtitsa

Source:IBASource:IBA

Korean Investment to SE EuropeKorean Investment to SE Europe

0

50

100

150

200

250

300

Cumulative Investment (Projects, USD m)

Case 5 13 2 36 0

Amount 55 264 3 165 0

Bulgaria Romania Slovenia Turkey Croatia

Source: Korea Eximbank

Automotive Industry Mechanical engineering Electronics ICT Energy Food processing

Attractive sectors for Korean investmentsin Bulgaria

Attractive sectors for Korean investmentsin Bulgaria

Why Bulgaria?

Quality of human capitalQuality of human capital Education levels among Europe top 5%Education levels among Europe top 5% 7% of workforce has engineering degrees7% of workforce has engineering degrees English studied by 70% of studentsEnglish studied by 70% of students Motivated and entrepreneurial attitudeMotivated and entrepreneurial attitude

Quality of business environmentQuality of business environment Strong institutional support for foreign Strong institutional support for foreign investors investors No restrictions to capital flowsNo restrictions to capital flows

Quality of lifeQuality of life Excellent all-season outdoor recreationExcellent all-season outdoor recreation Diverse cultural heritage and art activitiesDiverse cultural heritage and art activities World renown food and beveragesWorld renown food and beverages

Gateway to Europe and AsiaGateway to Europe and Asia

High and sustainable growth of the economy High and sustainable growth of the economy

Favourable business environmentFavourable business environment

10% corporate tax rate (lowest in EU)10% corporate tax rate (lowest in EU)

10% flat personal incomes tax rate /1.1.2008/10% flat personal incomes tax rate /1.1.2008/

Investment incentives for qualified investmentInvestment incentives for qualified investment

Among lowest operational cost in a European Among lowest operational cost in a European

market economymarket economy

Duty free agreements covering markets with 550 Duty free agreements covering markets with 550

mln. customers mln. customers

Double Taxation Avoidance Treaty with KoreaDouble Taxation Avoidance Treaty with Korea

INVESTMENT POLICY DIRECTORATEINVESTMENT POLICY DIRECTORATE

TEL: +359-2-940-7461TEL: +359-2-940-7461

FAX: +359-2-980-5109FAX: +359-2-980-5109

www.mee.government.bgwww.mee.government.bg

REPUBLIC OF BULGARIAREPUBLIC OF BULGARIAMINISTRY OF ECONOMY AND ENERGYMINISTRY OF ECONOMY AND ENERGY

REPUBLIC OF BULGARIAREPUBLIC OF BULGARIAMINISTRY OF ECONOMY AND ENERGYMINISTRY OF ECONOMY AND ENERGY