How will the unprecedented sanctions against Russia (the fall of the New Iron Curtain) affect the Bulgarian economy?
The new Iron Curtain is already a fact. It will divide the world and the consequences for global business are yet to be felt. But first we want to say that our hearts and souls, our prayers are with the people of Ukraine. Our help and warmth is for the refugees. At a time when a senseless fratricidal war is raging in the center of Europe and so close to Bulgaria, to our homeland, it is very difficult not to approach emotionally and think about business. But the reality of this war is already pressing on us, and it is crucial that business oriented quickly to protect itself from greater losses. Because the near future comes with the promise of even higher prices for natural gas and oil, raw materials and higher inflation. Many companies have not yet overcome the effects and losses of Covid-19, and a new great economic crisis is on the horizon. Is there a way to limit losses, despite the many dimensions of this new crisis?
Due to its specific geographical location, Bulgaria has always been a bridge between East and West, between Europe and Russia, between EU and the Arab world. How this can help and protect Bulgaria from more serious shocks? At the same time, Bulgaria’s energy dependence on the Russian Federation is great… Can Bulgaria become a key factor in the post-military reconstruction of Ukraine and the region around the former Soviet republic?
What are the biggest challenges that foreign companies in Bulgaria will face (problems related to logistics and supply chains)?
Russian natural gas and the EU’s dependence.
The EU economy is heavily dependent on Russian natural gas, Russian oil, Russian coal and Russian nuclear fuel. About 40% of the EU’s needs for “blue” fuel are provided by the Russian Federation. But this is an average percentage for the EU. For countries such as Bosnia and Herzegovina, North Macedonia, Estonia, Latvia, Germany, Italy, Hungary, Croatia, Bulgaria and others – this percentage is much higher. Nearly 60% of Germany’s industrial production is dependent on Russian energy sources. The economies of Bosnia and Herzegovina, Northern Macedonia and Moldova are 100% dependent on Russian gas. Finland and Latvia receive more than 90% of the gas they need from their huge neighbor. For Hungary, Estonia and Bulgaria this figure is about 75%!
At this stage, the replacement of the Russian energy with natural gas from Iran, liquefied gas from US, oil from Venezuela or other alternative suppliers is almost impossible (at least in the next 2-3 years). And even if it does, the price will be unbearably high for the economies of the EU countries mentioned above.
Nevertheless, Bulgaria unconditionally supported the sanctions against Russia. And this behavior must not be forgotten by the EU’s governing and financial bodies. Bulgaria has once again proven to be a reliable partner, despite all the risks and negatives for its economy.
For the Old Continent, the supply and energy crisis is already a fact. Logistics and supply chains will be under even greater pressure. Without significant financial support from the EU and the governments of the countries concerned, many businesses and even entire sectors of the economy (such as the chemical industry, the production of fertilizers for agricultural purposes, for example, and other highly energy-dependent industries) will be forced to shut down. .
Therefore, the expectations of both Bulgarian politicians and their counterparts from countries more dependent on Russian gas are for the launch of a major economic project to rebuild their economies after the end of the war (similar to the Covid-19 Pandemic Recovery Plan). In addition to the EU, the United States is likely to be involved in this project. At least these are the signals sent to the hegemon’s faithful allies. Of course, the main recovery plan (for which funds are already being raised) is related to Ukraine. The war-torn country will need the sympathy of the whole world to get back on its feet. Unfortunately, the lost human lives, grief and pain that this senseless war will bring to thousands of Ukrainian families – can not be returned or restored in any way. War is the greatest evil and nothing can justify it.
The new Iron Curtain descended on land, air, sea and even in the Internet.
The world will never be the same again. The new Iron Curtain is already a fact and has come down for Russia and its closest allies. If you haven’t looked at the world map recently – now is the time to do so. Russia is a huge country (spread over 11 time zones). The EU, the US, Japan, the UK, Canada, Australia and many other countries have closed their land, sea and air borders to Russian goods and cargo. In response, Russia has taken mirror action against these countries and the EU. This is a full-scale economic war, which so far has no end in sight. So if you have any assets, any plans or goals related to the Russian market, Belarus and the border regions southeast of Russia – forget about them. The logistical costs of bypassing such a vast area will be prohibitive (even more so at these current fuel prices and trends). Maintaining a supply chain in this region of the world is almost impossible (at least as long as the war continues).
There is another factor that is extremely important. The name of this factor is: China. The second largest economy in the world (and according to some – already the first) has so far taken a neutral position. China did not support the UN resolution condemning Russia as an aggressor. China abstained from voting. What does this mean? As usual, China is trying not to quarrel with Russia or the United States. China is waiting and is unlikely to change its position. Of course, Beijing is well aware that what is happening in Russia at the moment may befall them tomorrow in terms of the sanctions that are being imposed. At the same time, China and the United States – despite their problems – are far more economically connected than Russia and China. Any movement in China other than neutrality over this war will be a huge surprise. I.e. for now, China remains a reliable business partner for the EU and Bulgaria.
How can companies in Bulgaria avoid risks? Is there a solution?
Alexander Bell said: “When one door closes, another opens. But we look at the closed door for so long and desperately that we do not see those who open for us”.
Here are some more sayings that are appropriate for the current situation:
“If you didn’t plan the success, then you planned the failure.”
“Whenever you see a successful business, know that someone has made a bold decision.”
And our haiku-advice is: “Plan for success, act quickly and boldly to achieve it!”
3 tips on how to limit losses and reduce risk for your business
Aim for absolute end-to-end visibility.
Russia will long be on the “black list” of the United States and most EU countries to conduct any business. Therefore, avoid at least for the next 12-18 months to conclude trade deals with business structures or businessmen based in Russia, Belarus, Kyrgyzstan. To a large extent, the same is true for countries such as Kazakhstan, Tajikistan and Uzbekistan. Logistical links with this region from post-Soviet republics will be the least difficult. Lack of security and clarity of connections, high logistics costs and supply chain problems – this is a bad business formula.
Plan each transaction carefully. Investigate every detail such as location, energy and financial dependencies, property of the company you are dealing with (sanctions include a large number of Russian businessmen and companies). Make sure all payments reach you without any problems. As you know, Russian banks have been excluded from the SWIFT (Society for Worldwide Interbank Financial Telecommunications) system. Play out every possible scenario.
Next year, focus on playing it safe. What does this mean? In the near future, due to ever-increasing fuel prices, factors such as location and distance to your potential new business partner will be crucial. Therefore, make deals with companies that are based closer to you, both geographically and civilizational. The closer your business project is to you, the better. This means safer logistics and lower fuel costs. Of course, such a solution cannot work for a long time. But for the near, uncertain future, it is a good solution.
Create a risk assessment and management department (if you have not already created).
Only a quick response and timely measures to avoid threats and risks will guarantee you security of investment. It doesn’t matter what form this risk comes from – a pandemic, hostilities or anything else – react immediately. According to many studies (including the Capgemini Research Institute), a quick response in such crisis situations is crucial.
Sustainable logistics will guarantee you a durable supply chain and therefore a secure profit.
How to make your logistics sustainable or flexible. In this case, it’s the same thing. During the pandemic, supply chain disruptions brought huge losses to companies. At the same time, overproduction was accumulating in the warehouses. That’s why our next tip is concentrated on better pooling management. Focus on buying the logistics products you need most. This includes 2 types of pallet boxes:
- Reusable (folding plastic pallet boxes);
- One-way cardboard pallet boxes.
Returnable plastic pallet boxes are best suited for transporting goods and cargo over close to medium distances. They are max durable and designed for multiple use. This will save you a lot of money because you can use them for a period of 3 to 20 years. Foldable pallet boxes will optimize the space in your vehicles (especially on the way back), which will seriously reduce your fuel costs.
One-way cartoon pallet boxes are of the “send and forget” type. If you need to transport loads over long distances, they are the best solution. Their price is the lowest compared to wooden, metal or plastic pallet boxes and they come in all types and sizes.
Optimizing the space in your warehouses is also very important. Using the FIFO method and other effective strategies related to pooling management will provide you with additional flexibility and sustainability of your logistics and business.
How safe are your companies and investments in Bulgaria?
As they would be in any other EU and NATO member state. This is the shortest and most accurate answer. In fact, the security of your investments in Bulgaria is much more greater. And the opportunities for profit are practically unlimited.
The geographical position of Bulgaria is unique. It makes it a kind of bridge between East and West. This has been for more than a thousand years, and it will be the same in the future. Here the trade, energy, cash flows of the two worlds meet. Bulgaria is a beautiful land, a small paradise in the southeastern part of Europe. Highly developed summer and winter tourism, low taxes and fees, relatively cheap labor and talented people – this is a high-octane formula for success. And all this will not disappear either during or after the war in Ukraine.
Before the pandemic, the Bulgarian economy was among the steadily developing in the EU with constant positive growth of all major macroeconomic indicators. In 2022, the country expected 12 billion euros in its national pandemic recovery plan. For a small country like Bulgaria, this is a lot of money that, if spent wisely, will guarantee the country’s financial stability. Which is always a good sign for foreign investors.
If you are a foreigner and want to start a business in Bulgaria; start a company; open a bank account; apply for Bulgarian citizenship or a residence permit (visa type D) – you can count on the experts from Euroformat.eu for legal and administrative assistance.