Foreign investment remains crucial for achieving sustainable economic growth

Foreign investment remains crucial for achieving sustainable economic growth

According to preliminary data of Bulgarian National Bank foreign direct investment in Bulgaria for the period January – April 2015 reached 523.5 mln. Euros. That is 96.9 million euros (22.7%) more than the same period in the last 2014 year. Despite this increase the flow on a 12 monthly basis over the past three years remains within 1.1-1.5 bln. euro, or about 3.2% of GDP, says the analysis Industry Watch. Their importance is the key for the future development of the Bulgarian economy, as the short review of investment dynamics reveal the following major trends:

In the period 1996 – 2014, direct foreign investments in Bulgaria amounted to 43.7 billion euro. In the conditions of crisis and hyperinflation and in the real sector foreign investments were minimal. In the period 1997-2002 foreign investment levels reach an average of around 6% of GDP. In years when the economic growth exceeded by 6% (2003-2008 years), foreign investment tripled its contribution to 17.7% of GDP. After the crisis, foreign investment fell to 3.7% of GDP, and the total capital declined to 21.6% of GDP.

In the period after the crisis relatively less foreign investments are directed to companies in fields of trade, construction and real estate and financial sector compared with the period before the crisis. However, the share of investment in the field of industry, utilities, hotels and restaurants, as well as companies dealing with transport, storage and communications industry has become relatively more attractive to foreign investors, concentrating 27% of the investments after the year of 2009.

In 2013, Bulgaria was behind Estonia, Russia, Czech Republic and Latvia, according the indicator of attracted foreign investments per capita. If we consider the differences in population, however, Bulgaria still has managed to attract more foreign investments per capita in comparison with Lithuania, Turkey, Romania and Poland.

In the period 1996-2014, the biggest major sources of foreign investments in Bulgaria are the Netherlands (16% of all FDI), Austria (14%), Greece (8%), the UK (6%) and Germany (6%). It turns out that the euro-zone countries except major trading partner of Bulgaria, are the leading foreign investor in the Bulgarian economy. Among the biggest investors are Cyprus, Russia, Switzerland and the USA, and Central European countries like the Czech Republic and Hungary. After the year of 2009 the importance of countries such as the Netherlands, Russia, Switzerland, Italy, Czech Republic and France as a source of foreign capital increases.

Statistics about the origin of foreign investments should be regarded with some reservations. On the one hand, a significant part of the capital flow coming from countries, often called “offshore” which hides the true origin of the investor. For the entire period, the amount of investment from such jurisdictions outside the EU was 6.3% of the total, and if we add Cyprus, Malta, Liechtenstein and Luxembourg, their share reaches 16%. On the other hand, there is the very company-investor in Bulgaria changes its owner once it is established in Bulgaria, and so actually change the geographic profile of companies doing business in the country.

In fact, during the recent years we have witnessed a very dynamic process of mergers and acquisitions, that affect companies operating in Bulgaria. They will affect both commercial orientation and sources of financial resources for development and the operational management and corporate culture. Several such transactions hit key companies in Bulgaria. The owner of Postbank – Eurobank – already controlled (nearly 65%) of US and Canadian funds, led by Fairfax Financial Holding (20%).

After he successful conclusion of the capital increase to 2864 million euros in May 2014, 64.6% of the bank’s shares are owned by institutional and individual shareholders, including than Fairfax International, global funds such as McKinsey Financial Corporation Capital Group Inc. Kampanis. and others. Norwegian Telenor Group now owns the telecommunications operator Globul – the new owner attended the 13 national markets, serving 186 million. Subscribers and an annual turnover of 12.7 bn. Euros.

Meanwhile, the Mexican Carlos Slim multibillionaires directly and indirectly owns 60% of Telekom Austria – owners of Bulgarian operator Mobiltel. German investor Xella International – a manufacturer of building materials in Bulgaria – with French shareholders fund PAI Partners and US Goldman Sachs Capital Partners. In the automotive industry and the Belgian EPIC sensor Knight became part of the business of IMI Philippine and US Sens (with an annual turnover of 2.4 bln. US dollars and factories in 15 countries) and the German Ixetic is now part of the operations of the Canadian Magna Pauartreyn (with sales of 36 bln. dollars and 130 thousand employees worldwide).