Investment Climate in Bulgaria - August 1997

Ilian Vassilev
President, Foreign Investment Agency


In 1991 Bulgaria chose the path of rapid and radical economic reform, beginning with the signing of Bulgaria's first programme with the International Monetary Fund (IMF). The major achievements of this programme were to curb inflation, to achieve relative stability of the national currency and rapid growth of the private sector, and to slow down the decline of the economy. Within four years the legal and institutional framework of a market economy was established and now it is fully implemented.

Budget deficit %
  1992 1993 1994 1995 1996 1997

The important cuts in government spending, as well as the restrictive incomes policy allowed Bulgaria to make certain steps in limiting the budget deficit.

After some years of decline of the GDP a growth trend was observed in 1994 and 1995.

The embargo on trade with ex-Yugoslavia had a negative impact on the Bulgarian economy. In 1996 the GDP dropped by 10.9 per cent due to the complex negative impact on the Bulgarian industrial sector in the past.

Unlike the decline in the public sector, the private sector tended to grow in 1996. Private industrial companies reported a 16 per cent growth in 1995. Most of the credit for that goes to privatised businesses which are investing and branching out.

Bulgaria had a trade surplus of about US$200 million in 1996. A positive trade balance is projected for the end of 1997.

In the first quarter of 1997 a new agreement with the IMF has been achieved. It is very important for the stabilisation of the economy and for the implementation of the Currency Board in Bulgaria.

The main parameters of the agreement are:

  • total and immediate liberalisation of prices;
  • acceleration of the privatisation process. About 25 per cent of the state's assets have to by privatised by May 1997, and 50 per cent by the end of the year. The total privatisation of all state property will be finalised over a period of two years;
  • liquidation of all loss making state owned industrial enterprises;
  • budget deficit of six per cent of GDP;
  • acceleration of bankruptcy procedures for loss making banks. Immediate privatisation of the large state banks.

The implementation of the Currency Board in Bulgaria, following the contracted conditions, started on 1 July 1997. The expected results will be justified at the beginning of September.

Privatisation and restructuring

Privatisation in Bulgaria started in 1993 with various techniques such as open tenders, auctions, management buy-outs, negotiations with potential buyers etc. The government was not aiming solely at generating revenue but at improving the efficiency of the economy and thus pursuing long-term results rather than immediate profit.

The Privatisation Agency is responsible for enterprises whose book value of fixed assets exceeds BGL 70 million with smaller ones being sold by line Ministries. The Privatisation Agency can include special clauses in the sales contracts such as undertaking liabilities of the privatised enterprise, pledging commitments for future investment, maintaining or even increasing the level of employment etc, instead of maximising the price of the deal. It is possible for up to one half of the transaction price to be paid in government securities.

The sales of state-owned companies accelerated in late 1996 and early 1997. During 1996, the Privatisation Agency raised $428 million through 517 cash privatisation deals, with an additional $172 million promised in additional commitments by the investors, making a total of $600 million. The accumulation of cash privatisation transactions for the first half of 1997 are as follows: direct financial effect $312 million, investments contracted $453 million, making a total effect of $765 million.

The government has indicated that in 1997 over 130 companies will be privatised including some in the chemical, oil-processing, agricultural, construction and tourism sectors. The majority will be handled by the Privatisation Agency, and the others by the Ministry of Trade and Tourism and the Ministry of Construction.

Since November 1994, Brady Bonds and domestic bad-loan bonds (ZUNKs) have been used as payment for assets being sold into the private sector.

Mass privatisation

In 1996 the government adopted a mass privatisation programme which included the free distribution of privatisation bonds. More than 1,000 companies in key industrial sectors such as machine building, chemicals, food-processing, electric and electronic industry have been divested. Vouchers have been acquired by three million citizens who participated in the centralised auctions for buying shares of companies directly or through the privatisation funds.

Privatisation funds can own up to 34 per cent of the shares of an enterprise. There is no restriction on foreign ownership of the privatisation funds, but managers and board members need Bulgarian residency.

Secondary market trading will be developed through stock exchange securities in late 1997. The Bulgarian Stock Exchange is starting in Sofia from October 1997. By mid-1998 all state-owned firms except the utilities and a small number of 'strategic' enterprises are to be privatised under a government programme agreed with the IMF. By launching these various privatisation methods, the government intends to privatise about half of the state-owned assets before the end of 1997.

Private sector as % of GDP
  1992 1993 1994 1995 1996 1997

Foreign investment

Between the start of the reforms and June 1997, Bulgaria has attracted around $1,098 million in foreign investments, including $446 million committed under the terms of privatisation contracts. In 1996 and 1997 many foreign investors in Bulgaria reinvested capital and expanded their initial projects. Reinvestment expenditure amounted to $106.73 million.

Foreign investment by years in US$ million
  1992 1993 1994 1995 1996 1997

The following are the largest foreign investors:

  • Cable & Wireless - UK (Telecommunications, 1992, 1993, 1995)
  • American Standard - USA (Industry, 1993, 1996)
  • Willi Betz - Germany (Transport, 1994)
  • Ytong Holding - Germany (Construction, 1994)
  • Shell Overseas Holding (Trade, 1994, 1995)
  • Raiffeisen Zentralbank - Austria (Finance, 1994, 1995)
  • Siemens - Germany (Industry, 1994, 1996)
  • Danone - France (Food industry, 1994, 1996)
  • Kraft Jacobs Suchard (Food industry, 1994, 1995)
  • Nestle - Switzerland (Food industry, 1995)
  • Brewinvest - Greece (Food industry, 1995)
  • Dresdner Bank - Germany (Finance, 1995)
  • Navan Mining - Ireland (Mining, 1995, 1996)
  • WAZ - Germany (Printing and publishing industry, 1996)
  • Daewoo - Korea (Hotels, 1996)
  • Solvay - Belgium (Chemical industry, 1997)

The most attractive sectors for foreign investment are the chemical industry, food processing industry, non-ferrous metals, tourism, transport and construction materials.

Opportunities for investment

An investor considering Bulgaria as a business location is free to choose between building an enterprise from scratch, purchasing an existing company or forming a joint venture with a domestic partner. Similar to the other Central and Eastern European countries, privatisations and joint ventures account for the bulk of all foreign direct investment (FDI). Industrial cooperation, licensing and concession agreements etc are also an option in Bulgaria.

Chemical industry

The chemical industry is attractive for investors due to its high export orientation, its use of domestic raw materials, up-to-date technologies and machinery and the relatively large size of enterprises in this sub-sector. The Neftochim refinery is the biggest in the Balkan region. The chemical industry produces plastics, fertilisers, soda ash, PVC and fibres at world recognised quality.


One of the few branches which did not suffer from the recession in the economy was the steel and metal industry. It showed stability in 1995 and presently comprises 10.8 per cent of total exports. In 1996 this sub-sector did not make any big changes.


This sector includes more than 400 enterprises specialising in casting, machine tools, wood processing machines, machines for the mining industry, machines for the textile industry, machines for the food-processing industry, agricultural machines, shipbuilding, automobile construction, fine mechanics, metal constructions, household instruments.

The most significant products with strong positions in the international market are ferrous and non-ferrous castings, battery and engine powered trucks, electric hoists, ships, hydraulic and pneumatic components, universal machine tools, water pumps, bearings, metal packaging, fixing components.

Electrotechnical industry

This sector includes 70 enterprises specialising in the production of wires and cables, batteries, low and high voltage devices, lighting devices, electrical motors, electrical fittings and materials, household electrical equipment, electrical hand operated instruments etc. Bulgaria has both the largest and the greatest number of high-tech plants in Eastern Europe for the production of batteries. The most significant products with a good position in the international market are wired and cables, electrical hand operated instruments, batteries, electric motors, refrigerators, refrigerator engines and power transformers.


This sector includes 120 enterprises specialising in the production of computers, radio and telecommunications, electronic components, industrial electronics and automation instruments. The most significant products with strong positions in the international market are hybrid integrated circuits, specialised custom integration circuits, hard disks, floppy disks and electronic cash registers.

Food processing

Food processing is one of the most attractive industries for foreign investment. The large demand for foodstuffs as well as the established traditions and availability of production capacities contribute to the competitiveness of the Bulgarian food processing industry. It is noteworthy that the largest privatisation deals and joint ventures have taken place in the dairy, brewery and confectionery sectors.

In 1993 the French company Danone established a large joint venture for the production of dairy products, mainly yoghurt, with the Bulgarian company Serdika.

The volume of production from the wine industry amounted to 155 million litres in 1995 and 162 million litres is estimated for 1996. Exports continue to increase, mainly to the United Kingdom, the USA, the Netherlands, Russia and Poland.


There are large investment opportunities in the textile sector. In 1996, more than 200 companies produced in excess of 70 million metres of cotton, 11 million metres of wool and 13 million metres of silk fabrics. There are a number of well equipped clothing and footwear factories geared towards exports, most of which have been included in the privatisation lists. Many textile companies operate very actively in sub-contracting with foreign companies. The key export markets are Germany, Russia, the Netherlands, the USA and Canada.


Tourism is an important priority sector due to Bulgaria's natural assets. A combination of mountain ranges for vacations and hunting facilities provide opportunities for year-round tourism. Bulgaria's 1,300 year history and culture, combined with the relatively low prices and acceptable service attract tourists from all over the world. The Black Sea resorts accommodate 110,000 people (from Germany, the Netherlands, Sweden, the UK, Russia, Poland etc) and the smaller villas over 50,000. Approximately eight million tourists visit Bulgaria every year. Privatisation of state owned facilities is one of the first priorities in the programme of the government.


Due to the cross-road geographical position of Bulgaria, transport is a very attractive sector for investment. The government offers investment projects in construction and development of infrastructure on a tender basis. These projects are open to participation by both foreign and local investors.

Investment incentives and protections

The Foreign Investment Act provides for a liberal regime for the carrying out of business activities by foreign persons in Bulgaria.

The legal framework, including both international treaties and domestic legislation, aims at creating a favourable environment for the functioning of a sustainable market economy. Compared to other Central and Eastern European countries, Bulgaria has the most liberal legal provisions for foreign investment, including the absence of any requirements for preliminary registration of the investment as a prerequisite for its effectiveness.

The term foreign investment shall mean every investment made by a foreign person or by a branch thereof in:

  1. corporate stock and quotas in companies;
  2. ownership of buildings and limited property rights over real estate;
  3. title to and limited property rights over movables having the nature of fixed assets;
  4. ownership of a business as well as of a self-contained part thereof under the Transformation and Privatisation of State-owned and Municipal Enterprises Act;
  5. bonds, treasury bills and government securities as well as other financial instruments derivative therefrom issued by the Government, by the municipalities and by Bulgarian legal entities;
  6. credits including in the form of finance lease;
  7. intellectual property: copyright and neighbouring rights; patentable inventions; useful models; trademarks; service marks; industrial designs;
  8. rights under concession and under management assignment agreements.

A foreign investment shall also mean any increase in the value of investments under the preceding paragraph.

  • the ratio of foreign and local participation is not limited;
  • non-residents may invest in all kinds of companies which are identical with the world-wide practice: general partnerships; limited partnerships; limited liability companies; joint stock companies; companies limited by shares; banking and insurance may only be performed by joint stock companies and cooperative organisations;
  • any person, including a non-resident, may participate in more than one company;
  • bilateral agreements on promotion and mutual protection of foreign investment also define as investment any stock/share participation in a company or other kind of property relating to business activity. The latter includes ownership rights as well as commercial and intellectual property.

Ownership of real estate

  • foreign investors are free to acquire ownership of buildings and limited property rights of real estate;
  • companies with foreign participation registered under Bulgarian law may acquire titles of ownership on land;
  • according to the constitution, foreigners and foreign legal entities may not acquire ownership of land except by legacy by law. In this case, foreign persons are obliged to transfer their ownership of land to local persons within three years after the legacy enacted;
  • right of ownership on residential property may be acquired only through the exercise of real right of construction;
  • ownership rights on land, save the arable one, acquired before the adoption of the Constitution in 1991, are not subject to these limitations.

Investment process

The investment process in Bulgaria is simple and the legal provisions give local and foreign persons equal treatment. However, foreign investors need to obtain preliminary permission only for a small number of investment activities explicitly stated in the law (production of weapons, ammunitions and military equipment, performing of banking activity and participation in banking companies, performing of insurance services and participation in insurance companies, acquiring immovable property in border zones and other areas relating to national security and designated so by the Council of Ministers - as such regions are not defined yet there are no regional limitations for the acquisition of immovable property by non-residents).

Similarly to Bulgarian investors, foreigners have to register their activity with:

  • the local Tax Administration Offices for taxation purposes;
  • the local Social Security Office if foreign investors are employers;
  • the National Statistical Institute under the registration system BULSTAT for statistical purposes;
  • the customs authorities when foreign trade operations are performed.

Investment protection - national treatment

A basic principle of Bulgarian law is that non-residents are entitled to perform economic activity in the country under the same provisions as Bulgarian citizens and legal persons save otherwise provided by law. National treatment refers to any kind of business performed by local investors.

Most favoured nation status

Bilateral agreements on the promotion and mutual protection of foreign investment include, besides the national treatment regime, the most favoured nation status in the event of investment by persons of one of the contracting countries on the territory of the other country.

Legal guarantees against adverse changes in legislation

Where international agreements to which Bulgaria is a party provide for more favourable terms and conditions for foreign investors, these terms are prevailing when applicable. Foreign investment registered prior to any legislative amendments imposing statutory restrictions thereon shall not be affected by these restrictions for a period of ten years starting from the date of entry into force of the restrictions.

The Law on Registered Pledges (1996) considers collateral effective even when the property pledged is left with the debtor and used by them.

Profit and capital repatriation

There are no restrictions on after-tax profit or capital repatriation except for profits derived from companies privatised with Brady bonds. In this case profits may be repatriated in five years after the privatisation deal was concluded.

Foreign investors have the right to buy foreign currency from Bulgarian banks for the purpose of transferring it abroad in cases of:

  • income in leva derived from an investment;
  • liquidation quota in the event of termination of an investment;
  • proceeds from the sale of an investment;
  • other cases.

The profit can be repatriated only after payment of due taxes and charges and presentation before the authorities of a document for registration of the investment.

Protection against expropriation

Foreign investors' property can be expropriated pursuant only to statutory provisions and in no case under provisions for implementation of laws (ie decrees, Council of Ministers Regulations etc)

The expropriation may take place only after the owner has been fairly compensated at market prices. The compensation should be made with an equal property situated near the expropriated one or in cash if the foreign investor prefers. The compensation should amount to the market value of the property at the day of the expropriation. The Minister of Finance should issue an Ordinance for the expropriation and its compensation which may be appealed before the Supreme Administrative Court as regards the grounds for the expropriation, its evaluation, the method of compensation and other items of the Ordinance.

Bilateral agreements on the promotion and mutual protection of foreign investment also recognise the right of the state to alienate foreign investors' property on its territory but only for the public good, on statutory grounds, without discrimination and upon sufficient consideration.

Foreign Investment Agency

In April 1995 the Foreign Investment Agency was established as a one-stop shop institution for foreign investors. A key function of the Agency is to assist the companies in the investment process. It provides up to date information on the investment process in the country, legal advice, searching for suitable Bulgarian partners, coordination of the investment policy with other institutions etc.

Ilian Vassilev, President of Foreign Investment Agency
Address: 3, Sveta Sofia Str, 1000 Sofia, Bulgaria
Tel: ++359 2 980 0918
Fax: ++359 2 980 1320

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