bulgaria presentation for japanese investors
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Adamant Capital Partners AD
October 2008
Introduction toInvestment opportunities in Bulgaria
Sofia, December 2008
Contents
Trade relations EU-Japan;
Business optimization opportunity;
Bulgaria overview;
Main strategic advantages of Bulgaria;
Case study- Yazaki Bulgaria EOOD;
Trade relations EU-Japan
The compound GDP of EU and Japan amounts of around 40% of the total World GDP
The total trade between EU and Japan is around € 125 bn on an year base
The EU exports to Japan in 2007 are 43.8 bn (3.5% from the EU total exports)
The Japan exports to EU in 2007 are 78.1 bn (5.5% from the total Japan exports)
The main sectors of Japan exports to EU are:
o Machinery
o Electrical Machinery
o Transport equipment
o Chemicals
o Manufactured Goods
Business optimization opportunity
Japanese companies invest in production plants in Bulgaria
Bulgarian subsidiaries ofJapanese companies start tosell their goods on thecommon EU market
Main advantages for Japanese companies to produce in Bulgaria:
• Part of the Common EU market • Cheapest Cost of Energy• Cheapest Labor cost• Corporate tax 10%• Cheapest transport (via Danube river)• Faster time to EU market
EU COMMON MARKET
Bulgaria Summary
• Member of EU;
• Strategic location;
• Lowest labor cost in EU;
• Availability of qualified work force;
• Lowest energy costs in EU;
• Lowest corporate tax in EU: 10%;
• On the road of raw materials from Russia and Kazakhstan;
Bulgaria overview
Map 1: Europe & Bulgaria
Bulgaria overview
Full member of EU since 01.01.2007. The Country’s territory is 110 910 sq. km. and it’s population is 7 680 000 people
Adopted currency board in 1997 and fixed the exchange rate of the local currency (Lev) to the Euro
Investment grade credit rating (BBB-)
Average growth of GDP of 6% per year
Average monthly salary of 250 euro
Main sectors of the economy:
o electrical engineering, electronics, automotive, real estate, mechanical engineering, food & beverage, IT & telecommunications, Business process outsourcing, energy and non metallic mineral products
Bulgaria overview (cont.)
• Bulgarian GDP has grown steadily since 1999 mainlyas a result of increased consumer demand, domesticand foreign direct investments and increased exports
• Bulgarian GDP is converging to the EU 27 average0.0 50.0 100.0 150.0 200.0 250.0 300.0
Bulgaria
Poland
Lithuania
Slovakia
Portugal
Czech Republic
Cyprus
EU (27 countries)
Spain
Germany
Finland
Denmark
Austria
Ireland
GDP Per Capita, % of EU 27 in PPS 2007
20.0
25.0
30.0
35.0
40.0
45.0
50.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008f
Bulgaria, real GDP growth, % YoY
EU27, real GDP growth, % YoY
Bulgaria, GDP per capita, % of EU 27 in PPS
Source: Eurostat
Source: ACP Research; Eurostat
Bulgaria overview (cont.)
Source: Bulgarian Investment Agency Source: Bulgarian Investment Agency
Country
Corruption Percentage
Index, 2007 Procedures, no. Duration (days)
Unemployment
rate, %, 2007
Average gross monthly
salary, Q4 2007, EUR
Bulgaria 4.1 9 6.9 233
Croatia 4.1 8 11.2 896
Cz. Rep. 5.2 10 6.6 782
Hungary 5.3 6 8.1 802
Poland 4.2 10 14.9 690
Romania 3.7 6 6 474
Slovakia 4.9 9 10.8 550
Source: Transparency International, World bank, EIU, National Banks, Statistics offices & Investment agencies
31
14
25
Business start-up
32
40
17
16
GVA by sub-sectors, 2006 FDI inflow 2002 – 2007, mln USD
0% 10% 20% 30% 40% 50% 60% 70%
Agriculture
Mining & quarrying
Construction
Industry
Finance
Transport
Other services
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
2002 2003 2004 2005 2006 2007
Bulgaria overview (cont.)
Matrix of inward FDI performance and potentialHigh FDI performance Low FDI performance
High FDI potential Bahamas, Bahrain, Belgium and Luxembourg,Botswana, Brazil, Brunei Darussalam, Bulgaria,Chile, China, Costa Rica, Croatia, Cyprus, TheCzech Republic, Denmark, Dominican Republic,Estonia, Finland, France, Hong Kong (China),Hungary, Ireland, Israel, Kazakhstan, Latvia,Lithuania, Mexico, the Netherlands, Panama,Portugal, Qatar, Singapore, Slovakia, Slovenia,Spain, Sweden, Switzerland, Trinidad and Tobago,Tunisia and Viet Nam.
Argentina, Australia, Austria, Belarus, Canada, Germany,
Greece, Iceland, Islamic Rep. of Iran, Italy, Japan, Jordan,
Kuwait, Lebanon, Libyan Arab Jamahiriya, Malaysia, Malta,
New Zealand, Norway, the Oman, the Philippines, Poland,
the Republic of Korea, the Russian Federation, Saudi
Arabia, Taiwan Province of China, Thailand, Ukraine,
United Arab Emirates, the United Kingdom and the United
States.
Low FDI potential Albania, Angola, Armenia, Azerbaijan, Bolivia,
Colombia, Congo, Equator, Ethiopia, Gambia,
Georgia, Guyana, Honduras, Jamaica, Mali,
Mongolia, Morocco, Mozambique, Namibia,
Nicaragua, Nigeria, Peru, Republic of Moldova,
Romania, Sudan, Syrian Arab Republic, TFYR
Macedonia, Togo, Uganda, the United Republic of
Tanzania and Zambia.
Algeria, Bangladesh, Benin, Burkina Faso, Cameroon, the
Democratic Republic of the Congo, Cote d’Ivoire, Egypt, El
Salvador, Gabon, Ghana, Guatemala, Guinea, Haiti, India,
Indonesia, Kenya, Kyrgyzstan, Madagascar, Malawi,
Myanmar, Nepal, Niger, Pakistan, Papua New Guinea,
Paraguay, Rwanda, Senegal, Sierra Leone, South Africa, Sri
Lanka, Suriname, Tajikistan, Turkey, Uruguay, Uzbekistan,
Venezuela, Yemen and Zimbabwe.Source: UNICAD
Main strategic advantages of Bulgaria
Location;
Low operational costs; Availability of experienced workforce;
Favorable taxation system;
Industrial zones and cheap plots suitable for Greenfield industrial investments (the example of Russe Region);
Market dimension (EU common market);
Government incentives for investments;
Location
...5 out of 10 Pan European Corridors pass trough Bulgaria…
• Pan-European Transport Corridor № 4 (Dresden/Nurnberg – Prague – Vienna/Bratislava – Budapest
– Kraiova – Constanta/Sofia –Thessaloniki/Plovdiv – Istanbul)
• Pan-European Transport Corridor № 7 (Internal waterway Rein-Main-Danube)
• Pan-European Transport Corridor № 8 (Durres – Tirana – Kaftan/Kafasan – Skopje – Deve Bair –
Gyueshevo – Sofia – Plovdiv – Bourgas – Varna)
• Pan-European Transport Corridor № 9 (Helsinki – Saint Petersburg – Moscow/Pscow – Vitebsk –
Kiev – Lyubashevka – Kishinew – Bucharest – Rousse – Dimitrovgrad – Alexandroupolis)
• Pan-European Transport Corridor № 10 (Salzburg – Lyubliana – Zagreb – Belgrad – Nish – Scopje –
Veles – Thessaloniki: with divergence Nish – Sofia)
Location (cont.)
Raw materials arrive to Black Sea
via Volga river, then cross Black Sea
and continue via Danube river
14
Raw materials arrive in Bulgaria by ships (via Volga
river, Black Sea and Danube) from Russia and other
rich raw materials countries
Production is done in factories near Danube
river in Bulgaria
Final production is transported via
Danube river to Western Europe
Location (cont.)
Map 3: Pan European Transport Corridors
Location (cont.)
- Strategic location
- Availability of sea, river and
road transport
- Within 500 km from Sofia live
over 90 mln people
- A network of international
motorways crosses the country
- Presence of vital connections to
the countries of Western Europe,
Russia, Minor Asia, the Adriatic,
the Aegean and the Black Sea
Map 2: Pan European Transport Corridors in Bulgaria
• Bulgaria is located on the road of the raw materials coming from Russia andKazakhstan
• Pan-European Transport Corridor № 7 (Internal waterway Rein-Main-Danube) isparticularly important for production sites in Bulgaria
• The production materials arrive from the raw materials rich countries via Black Seaand Danube river; production is done in plants near Danube river; products and goodsare transported via Danube river up to Hungary, Austria, Germany and other Europeantarget markets
• Bulgaria is in the middle between the raw materials market (east) and the consumermarket (west); it is a convenient production destination for Japanese companies
Location (cont.)
Low labor costs
• Average gross monthlywage EUR 256
• 22% of the populationholds University Degree
• Educated workforce andavailability of specialists inthe field of manufacturingsector
in euro Total Public Sector Private sector
Total 2,642 3,199 2,434
Food Products, agricultural and
fisheries product processing 1,855 2,426 1,744
Mining and quarrying 4,352 6,219 3,702
Manufacturing 2,350 3,973 2,313
Electicity, gas and water supply 4,567 4,584 4,532
construction 2,172 3,020 2,147
Trade, repair of motor vehicles and
personel and household goods 2,140 4,124 2,133
Hotels and restaurants 1,641 2,236 1,606
Transport, storage and communication 3,266 3,489 3,107
Financial intermediation 5,853 7,379 5,788
Real estate, renting and business activities 3,070 3,077 3,069
Public administration, compulsory social security 3,906 3,906 X
Education 2,657 2,631 3,458
source: National Statistical Institute
Average annual wages and salaries of the employees under
labour contract by economic activity groupings in 2007
Low energy costs (cont.)
Natural gas prices for large industrial standard consumers
418 600 GJ per year (EUR per GJ); All taxes included
2007
EU (27 countries) 8.7500
EU (15 countries) 8.8000
Euro area 8.6800
Belgium 7.4200
Bulgaria 5.3845
Czech Republic 7.0880
Denmark 7.1765
Germany 11.2100
Estonia 5.0624
Latvia 6.0410
Lithuania 6.4643
Hungary 10.3256
Poland 8.0197
Portugal 5.4300
Romania 8.3394
Slovenia 8.8300
Slovakia 8.8820
Turkey 7.8411
source: Eurostat
Source: Eurostat
Low energy costs (cont.)
Electricity prices for large industrial standard consumers
24 GWh per year (EUR per kWh); All taxes included
2007
EU (27 countries) 0.0904
EU (15 countries) 0.0911
Euro area 0.0937
Belgium 0.0939
Bulgaria 0.0588
Czech Republic 0.0793
Estonia 0.0447
Italy 0.1283
Cyprus 0.1209
Latvia 0.0519
Lithuania 0.0632
Hungary 0.1012
Malta 0.0617
Poland 0.0688
Romania 0.0894
Slovenia 0.0813
Slovakia 0.1053
Turkey 0.0666
Norway 0.0621
source: Eurostat
Source: Eurostat
Favorable taxation system
20
%
Austria 25
Bulgaria 10
Belgium 34
Czech Republic 21
Estonia 21
France 34.34
Germany 30-33
Greece 25
Hungary 20
Italy 27.5
Ireland 12.5
Poland 19
Slovakia 19
Slovenia 22
Spain 30
UK 28
Corporate tax
• Corporate tax: 10%; Personal tax: 10%;
• 5 year taxation exemption for companies, whoinvest more than 5 mln euro in one year period.The exemption is possible in the following sectors:agriculture, manufacturing industry, production,high tech, infrastructure;
• Interest expenses are deductable up to 75% fromearnings;
• Taxation of dividends: 5%;
• Infragroup earnings are not subject to any sort oftaxation;
Industrial zones (the example of Russe Region)
• Area of the Region: 2,803 sq. km.
• Population: 253,008 people
• Unemployment rate: 11,4%
• Average annual wage (EUR): 1,885
• GDP of the Region: EUR 616.1 mln
• GDP Per Capita: EUR 2,398
• Pan European Corridors 7 and 9 converge in Russe. River transport via Danube available
Map 4: Bulgaria and Russe Region Source: Bulgarian Investment Agency
Labor forceBreakdown of labor force in Russe Region 2007
Labor force
Total ('000) 118.9
Employed ('000) 105.4
Unemployed ('000) 13.6
People not in labor force ('000) 104.8
Activity rate (%) 53.2
Employment rate (%) 47.1
Unemployment rate (%) 11.4
Educational level of employed people (%) 2006
Total 100
Higher education 25.8
Upper secondary
Total 62.2
Technical and Vovational 53.2
Lower Secondary or lower 12
Industrial Park Russe (Russe region)• The city of Ruse is an ancient cultural
and transport center of Bulgaria andthe Balkans
• Convenient transport connection between Western Europe - South-eastern Europe - Asia and the Caucasus countries (Armenia, Azerbaijan)
Pic 2: Port Russe
Pic 3: Port RusseMap 5: Transport Corridors
Industrial Park Russe (cont.)
• Area: 64 ha;
• Water, electricity and gas are available
• Master Development Plan: available
• Geotechnical survey: available
• Immediate proximity to Port Russe
(the biggest Bulgarian port on Danube)
• Access via road, Railway and water
• 70 km from the airport of Bucharest
Map 6: Port Russe and Industrial Zone Russe
Industrial Zone Russe
Market dimension (EU common market)
• Bulgaria is full member of EU since 2007;
• It is part of the common EU market for goods and services;
• Production made in Bulgaria is not subjected to any kind of customfees or other taxes related to access to the EU market;
• Bulgaria becomes attractive investment destination, due to thelow cost of production and the free access to the EU market;
Government incentives for investments
• The structure of the Bulgarian economy ischaracterized by strong inflow of FDIs
• In periods of global positive economical trend,the Bulgarian economy enjoys strong growthand dynamic investment activity
• In periods of global downturn, as the currentone, the risk of economical slowdown remainshigh
• For this reason, the Government is favorableto sustain business activities and to promoteFDIs with different investment incentives liketaxation exemption and others
Source: Bulgarian Investment Agency
Source: Bulgarian Investment Agency
Bulgaria Real GDP growth, 2002-2007;
Total GDP- EUR 28.9 bn (2007)
0
1
2
3
4
5
6
7
2002 2003 2004 2005 2006 2007
FDI to GDP, %, 2006 – 2007 E
0
5
10
15
20
25
2006
2007
Case study- Yazaki Bulgaria
• Yazaki Bulgaria EOOD is a subsidiary of Yazaki Corporation – Japan;
• Core business of Yazaki Corporation: wire harnesses and other components for theautomotive industry;
• The company has plants in 39 countries and over 200 000 employees all over the World;
• It produce in Bulgaria electrical wire harnesses for the automotive industry;
• The main export markets of Yazaki Bulgaria EOOD are France and Spain;
• The production plant of Yazaki Bulgaria is located in Industrial zone Yambol; The wholeproperty of the company is 50 000 sq. m. and the TBA of the factory is 24 250 sq. m.
• Currently there are 1 800 people employed in the producing plant
Case study- Yazaki Bulgaria (Cont.)
Main reasons for Yasaki to set up a factory in Bulgaria:
• Overall competitive costs;
• Availability of proper labor force;
• Stable political environment;
• Fast administrative services;
• EU membership of Bulgaria;o Free travel of people; transportation of materials, goods and
equipment within EU;
Contact DetailsMailing Address:
Contacts:
CEO
COO
Adamant Capital Partners AD
76A, James Bourchier Blvd.
Hill Tower Building
1421-Sofia, Bulgaria
T: +359 2 963 4510, +359 2 422 5970
T (UK): +44 20 33 84 1302
F: +359 2 422 5973
Mr. Bojidar Kounov
T: +359 2 422 5972
M: +359 884 7777 08E: bojidar.kounov@adamantcapital.eu
E: bojidar@bloomberg.net
Mr. Miroslav Velikov
T: +359 2 422 5992
M: +359 886 7177 00E: miroslav.velikov@adamantcapital.eu
E: mvelikov@bloomberg.net
Securities Brokerage
Research
Corporate Finance
Advisory
EU Funds
Mr. Nikolay Stoev
T: +359 2 422 5994
M: +359 888 5688 22E: nikolay.stoev@adamantcapital.eu
E: nstoev@bloomberg.net
Mr. Deyan Nikolov
T: +359 2 422 5996
M: +359 884 9554 46E: deyan.nikolov@adamantcapital.eu
E: nikolov@bloomberg.net
Mr. Jivko Stoimenov
T: +359 2 963 3075, +359 2 422 5970
F: +359 2 422 5972
M: +359 884 5976 54E: jivko.stoimenov@adamantcapital.eu
Ms. Radostina Tsvetanova
T: +359 2 963 3075, +359 2 422 5980
M: +359 898 572520E: r.tsvetanova@adamantcapital.eu
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