What do the Numbers Say?
For the past 2018, foreign direct investment in Bulgaria has exceeded 1.5 billion euros. Data are available from the Bulgarian National Bank (BNB). After subsequent adjustments, the amount is expected to increase further.
Against this backdrop, in 2018, direct foreign investment is already € 189 million more than in the previous 2017. The bulk of this growth comes from reinvesting profits from foreign companies in their companies in Bulgaria. Reinvest earnings amounted to € 264 million, compared to € 128.9 million in 2017.
Most direct investments in the country are aimed at the real economy. Foreign real estate investment fell 2.5 times compared to 2017. This is surprising given the rapidly developing real estate market in Bulgaria. The largest share in real estate investment in Bulgaria is Russia, Ukraine and Germany.
Where does the Investment Come From?
The source of the investment is reported on where the investor company is registered. It is therefore not surprising that the bulk of foreign investment in Bulgaria comes from the Netherlands – a preferred location for companies to register because of the tax incentives it provides.
The largest net flows of direct investment in the country in 2018 are from the Netherlands (EUR 1086.8 million), Germany (EUR 153.7 million) and Belgium (EUR 94.3 million).
What are the Trends?
Data show that the increase in foreign investment in fixed assets in Bulgaria continues at a good pace in 2018. For the previous 2017, their amount grew by 3.6% to 24.4 billion euros, according to the National Statistical Institute (NSI) ). The largest value of industrial investment was -10.6 billion.
Unlike the BNB data, which provides information on the current financial flows, the NSIs reflect the longer-term picture. Specifically, both the original transaction and all subsequent transactions.
The inflow of foreign direct investment in Bulgaria in 2018 is the second largest since 2015, after the Great Recession. The amount is much lower than the EUR 6.5 billion invested in 2008. But it should be borne in mind that then a huge part of the investment flow was directed to the real estate sector. After the bursting of the balloon, the value of direct investment in 2010 fell to 1.17 billion.
What is the Opinion of the Experts?
The positive change in the structure of foreign investment in Bulgaria in 2018 is also noted by economists. According to them, it is a good trend that two thirds of the investments are in the industry (about 1 billion euros), mainly with export orientation. EUR 670 million is in the financial sector. Basically, it comes from the increase in the capital of DSK before the purchase of Societe Generale Expressbank. In the trade sector, the investments are almost 260 million.
Why Foreign Direct Investment Is Important?
By itself, all investments create economic growth. But only a few of them directly affect the growth of consumption and exports. They directly transfer their value to manufactured goods and services and are therefore called direct investments. Being foreign is also important. They actually represent not just money transfer, but also business and production models. Foreign investment is usually accompanied by the introduction of new country know-how and training of the workforce. Thus they have a long-term effect on the development of the economy.
What Attracts Foreign Direct Investment?
In speculative investments, the investment horizon is often short-term in search of a quick profit. By contrast, foreign direct investment implies the formation of long-term business relationships and relationships. Therefore, factors such as security and stability are paramount to investors in this type of investment. Also, the increase in foreign direct investment reflects not only the current state of the country’s economy. But also the future prospects investors see for development and prosperity.
Follow VD&A on Facebook, where you can read more interesting material about the trends in the Bulgarian business and the corporate services we offer.