Bulgaria is located in the Balkan peninsula and it is the border of the European Union with Turkey (together with Greece).
The country is sparsely populated (7 million inhabitants), in particular, the countryside. Around 25% of the population is concentrated in the area of the capital, Sofia.
For a long time, Bulgaria was under the Ottoman Empire and it became independent in 1908. After the Second War World, Bulgaria entered the Soviet Union area of influence and only in 1990 it became a market economy.
Bulgaria entered the European Union in 2007, but they didn’t adopt the Euro.
BUSINESS OPPORTUNITIES
First opportunity: European Union membership
The internal market of Bulgaria is small, but they are part of the big European Union market that accounts for 500 million people.
Due to that Bulgaria can import and export to every European Union country without duties and quota, and with the same regulations.
However, Bulgaria has another big advantage to be part of the EU.
Bulgaria is the poorest country of the Union, and due to European rules, it is receiving a large part of European structural and investment funds that are allocated to poor members.
The EU funds are used to improve the country’s competitiveness, in particular, to create infrastructures.
Second opportunity: stable local currency
Bulgaria didn’t adopt the Euro. It is using Lev.
However, the Lev is pegged with the Euro for years. Essentially, it is like Bulgaria has the Euro. The exchange rate risk is zero for Eurozone countries.
The fixed exchange rate is: 1€ = 1,95 Lev.
If you are familiar with the Euro, it will be easy to calculate conversion in mind: you just need to take the Lev value and divide it by 2.
1.000 Lev are around 500€
This is particularly useful during commercial negotiation, which is important to think fast.
However, it is very immediate to have an idea how much Euros are Lev.
Third opportunity: taxation
The VAT is 20%, which is a value in the European average.
However corporate income tax is only 10%, and also the personal income tax is only 10%. These values are among the lowest in the European panorama.
There is something more. To attract foreign investments, there are some public incentives and the corporate income tax can be reduced further from 10% to 0%.
If you are interested, you can read the rules on the official website. In a general way, these incentives are given to companies that hire people in some areas of Bulgaria with a high unemployment rate.
Fourth opportunity: low labour cost
The labour cost in Bulgaria is the lowest of all the EU.
It is significantly lower than in Central European countries (Hungary, Poland, Czech Republic, and Slovakia), in which many companies delocalized the production in the past decades (especially German companies).
The graphic below illustrates clearly the differences.
It is 7 times less than in Germany. Source: Eurostat
Fifth opportunity: investments in infrastructures
We wrote previously that Bulgaria is a strong beneficiary of European Union funds.
Bulgaria is investing heavily in new infrastructures: streets, roads, rails, pipelines, etc.
If you are in the construction field, you should get a look to public tenders.
In the picture, a modern metro station of the capital
BUSINESS RISKS
First risk: small population
There are only 7 million inhabitants in Bulgaria, and the population is decreasing.
It is one of the fastest decreasing populations in the world, and the negative trend is expected to continue in the future.
Second risk: the poorest country in the European Union
The GDP per capita is just a bit less than 22.000$
Bulgaria gross domestic product growth was very strong between the years 2000 and 2008 (around 6% per year). Bulgaria suffered the crisis of 2008-2009 and had a long period of 6 years of slow growth. Only in 2015, it starts to grow fast again, however, at the pace of 3% – 3,5%, it didn’t reach the pre-crisis levels.
To recap, Bulgaria has a small population and a low GDP per capita. Consequently, the internal market is not very large. Moreover, inequalities in income distribution are quite pronounced (among the highest in the European Union).
We can conclude that the size of the middle class is not such high as other European Union countries.
Third risk: corruption
Bulgaria is the most corrupted country in the European Union according to Transparency International. Unfortunately, the corruption level has been more or less stable during the years.
Fourth risk: exposure to energy price
Bulgaria imports gas and petrol from foreign countries. This is normal for almost all European countries.
However, we have to consider that if the price of petrol and gas will go up, Bulgaria will have less money for investments and consumptions.
Fifth risk: level of digitalization
The European Commission created an index called DESI, that indicates the level of digitalization of European members.
According to the DESI index, Bulgaria has a big gap in digitalization to cover with other EU countries. In particular, Bulgaria lacks on 2 key aspects that are crucial from a business perspective:
- Local companies have to increase the level of digitalization
- Professionals in the digital economy are scarce
It must be written that Bulgaria has improved significantly in recent years, and it is strongly investing to reduce the gap further.
CONCLUSIONS
Speaking about exporting in Bulgaria, the market is interesting because but if you are selling somewhere in the European Union, you can also try to sell something in Bulgaria. Same regulations, no internal duties, etc.
If you are thinking about produce something, Bulgaria is extremely interesting because the labor cost is extremely cheap even if compared with Poland, Hungary, etc. You should evaluate to open a production site in Bulgaria (in that case you should take advantage of 0% corporate tax), or you can find manufacturers in loco (many business opportunities from Bulgaria have been posted on Globartis).
On the other hand, Bulgaria offers fewer services than other European Union counties. You have to evaluate carefully the trade-off costs-services before investing in Bulgaria.
Find other information about Bulgaria in our Country Data: Bulgaria Business Report
We wrote a post with all the useful links for doing business in Bulgaria (chambers of commerce, government agencies, etc).
Globartis Research
Are you looking for a trade partner in Bulgaria? Find them on our b2b trade portal
