Information and Communication Technologies in Bulgaria

NEDELCHO NEDELCHEVDeputy Minister Ministry of Transport and Communications

IT Conference, 19 October 2004SYSTEMS 2004

• Best EU accession status• Transparent rules & practices• NATO member, political stability• Low inflation - 2003 average inflation was 2.3%• Low budget deficit – 0% in 2003 • No currency fluctuations – Bulgarian lev pegged to the euro• High real GDP growth• High levels of education & skills• Competitive labour, rent and construction costs• Best in CEE quality of labour / cost ratio

Bulgaria – most attractive FDI location in CEE

16.5

11.5

8.9

12.213.7

15.1

17.619.4 20.4

0

5

10

15

20

1997 1998 1999 2000 2001 2002 2003 2004F 2005F

Source: National Statistics Institute

Gross Domestic Product (EUR bn)

4.0%

2.3%

5.4%

4.1%

4.8%4.3%

5.0%5.3%

0%

1%

2%

3%

4%

5%

6%

1998 1999 2000 2001 2002 2003 2004F 2005F

Source: Bulgarian National Bank

GDP Dynamics: 7 consecutive years of growth

Source: Bulgarian Investment Agency, Bulgarian National Bank

465 614 650 732 7551,065 901155

205350 81 150

346298

0

400

800

1,200

1,600

2,000

1998 1999 2000 2001 2002 2003 2004E

Greenfield, additional FDI, Reinvestments Privatisation Expected

505819

1 000905

1 411

813

2 000

Foreign Direct Investment, USD mil

• Taxes and tariffs – Corporate profit tax – down from 28% (2001) to 15% (2005)– Industrial commodity groups, such as ICTs and components, energy

sources, raw materials, medicines and others, are treated with zero rate of customs duties

­ 0% VAT rate on exports of software ­ WTO membership since 1996– European Union Association Agreement– EFTA agreement– CEFTA membership– Bilateral effective free trade agreements– Personal taxation: top rate dropped from 38% (2001) to 24% (2005)

Doing Business in Bulgaria (1)

• Rent – Boom in the offering of real estate – from EUR 8 to 20 / sq.m

• Telecom services – 2 active GSM networks, 3-rd in progress– 85% of households covered by the fixed network– Digitalisation: 45% by end 2004, 80% by end of 2007– 20.5% of the population estimated to have Internet access in 2004– Over 3,000 km of optical transmission lines

• Transport links– Daily direct flights to most European countries– Five international transport corridors crossing Bulgaria

Doing Business in Bulgaria (2)

Mobile

• First GSM operator: Mobiltel – 2.8 mil subs• Second GSM operator: Globul – 1.2 mil subs• NMT operator: Mobikom – 100 K subs• Third GSM license: BTC, part of privatization of the incumbent,

start operations in April 2005

• Forthcoming licenses: UMTS licenses to be issued in early 2005

Mobile market in 2003 recorded 10.9% y-o-y growthPenetration - 50% end of 2004, expected to reach 75% in 2008

Telecom Market

Telecom Market

Fixed telephony- on the road of liberalization

• Incumbent BTC privatized in June 2004 in a landmark for CEE private equity deal, total effect of privatization proceeds plus investment of over euro 1.1 billion

• 12 new operators of fixed voice service have been licensed (as of August 2004)

• Reference interconnect offer /RIO/ approved in June 2004• Local loop unbundling effective from Jan 2005

1.91.6

1.41.1

0.80.6

0.2 0.31.0%2.0%

3.3%

6.8%

10.4%

14.0%

17.0%

20.5%

24.0%

0.0

0.5

1.0

1.5

2.0

2.5

1997 1998 1999 2000 2001 2002 2003 2004F 2005F0%

5%

10%

15%

20%

25%

mln people, left scale % of the population, right scale

Source: ICT Development Agency

Telecom Market Internet Users

• New Telecommunications Law - fully harmonized with 2000 acquis and partially with 2002 acquis

• Transparent regulatory system– Significantly shortened terms and procedures for license issuing

have been introduced– Decreased number of activities that require individual licenses

• Law on the Electronic Document and Electronic Signature• Law on the Protection of Personal Data• Convention on Cyber Crime

Telecom Market Legal and Regulatory Framework

Communications14%

Others86%

USD 6.556 mil USD 1.049 mil

Telecom market - investments

• Foreign Direct Investments in Communications, 1998 – June 2004

Telecom market - conclusions

• Both mobile and fixed markets still have high growth potential• Large investments expected in every segment• New market entrants in mobile, fixed, satellite to fuel growth and

competition

• Telecom market in Bulgaria is of interest for:• Investors• Vendors• Service and applications’ providers

• More than 1,000 small and medium sized IT enterprises– Traditions (35 years of experience) in this area– Very well developed educational system in electronics,

engineering and computer sciences

• Areas of competitive advantage– Software – computer system software, networking software and

web-design, CAD/CAM/CAE software, telecommunications and wireless development software, application software, firmware

– Hardware – computer and systems assembling, digital and analog printed circuits design, PCB manufacture, analog mixed engineering

– Microelectronics – design ASIC’s, front-end and back-end microelectronic activities

– Automation – systems for industrial automation

ICT Highlights

Type of Specialization No of companies

System Integration 120Testing application software 53Service and computer equipment 173Telecommunication services 104CAD/CAM/CAE systems 38Custom software 23Graphic software and GIS 60Management analysis information systems 32Information systems for manufacture management and planning

40

Databases 109Operation systems 88

Wide range of specializations of the Bulgarian ICT companies

• Over 100 ICT companies certified under the ISO 9000• 15 companies certified under the ISO 14000

• In January 2004 the European Software Institute (ESI) launched a Regional ESI Center of Excellence in Bulgaria

Bulgaria was chosen out of other Eastern European countries to lead this project and host an ESI Center because:

• Bulgaria has remarkable specialists in software development• Bulgarian industry is ready to adopt modern certification and quality

standards to operate globally• ICT sector is a national priority and the Bulgarian government is

committed to develop the software industry

IT – Quality through Certifying of Companies and Specialists

Mission:• Develop industry competitiveness on the Balkan and Eastern European

countries. • Bulgaria - center of excellence and leading technologies

Target area:• Bulgaria and the Eastern European countries

Target Groups• IT companies and specialists• IT-intensive companies and organizations• State institutions and departments (e-government)• Citizens – e-awareness, e-government, IT penetration

ESI Center Bulgaria (1)

How can ESI Center Bulgaria help the ICT sector to increase its competitiveness?

• Support businesses to increase value added in their operations through implementation of latest good practices in:­ Quality management – Capability Maturity Model Integration (CMM®I)­ Strategic management – Balanced IT Score Cards (BITS)­ Increased productivity of SW intensive development processes

• Support universities in design and execution of modern practical oriented software engineering programs

• Rise awareness in the society and motivate citizens to increase their general IT knowledge level

ESI Center Bulgaria (2)

• SAP, Germany – SAP Labs Bulgaria, Sofia (2000)

­ Focused on developing a leading-edge J2EE Application Server­ Largest FDI in the software development sector­ SAP Labs Bulgaria employs more than 250 people

• EPIQ, Belgium – EPIQ Electronic Assembly, Botevgrad (1997)

­ Core business activities transferred to Bulgaria­ 1,000 employees and 8,000 sq. m production area­ Electronic and module assembly, development and manufacture of

plastic injection moulds & factory automation equipment

• Bulgarian Telecommunications Company (BTC)

­ Investor – Advent International, USA­ Price – EUR 280 mil for 65% ­ Investment of EUR 700 mil in the next 5 years

Investing in ICT in Bulgaria: Case studies

• Cutting-edge expertise in a multitude of ICT areas

• High growth rate of Internet users, mobile phone subscribers and Internet services suggests opportunities for future growth in the ICT sector

• Availability of new technologies promoted by public ventures and investments

• Integrated chain from academic research and discovery to global market launch

• Strategic location

Reasons to invest in Bulgaria

• Institutional support for major investment projects

• Robust legal framework, focused on attracting and protecting foreign investment

• Among the lowest costs of doing business in Europe

• Low regulatory obstacles and start up costs

• Highly educated workforce

• Excellent labour quality / labour cost ratio

Investors in Bulgaria will find …