Bulgaria – investment climate and business opportunities

1. Bulgaria – investment climate and business opportunities Sofia June 26, 2012

2. Bulgaria at a glanceLocation and key data Area: 110,910 sq. km Number of inhabitants (2011): 7.4 mln Capital and largest City: Sofia Other cities: Plovdiv, Varna, Bourgas, Ruse, Stara Zagora, Pleven, Veliko Tarnovo Natural Resources: oil, gas, coal, iron ore, copper, lead, zinc, antimony, chromite, gold, silver, magnesium, nickel, pyrite, marble, limestone, salt, arable land Major industries: electricity, water and gas supply; food, beverages and tobacco; machinery and equipment; base metals, chemical products, coke, refined petroleum Currency: Lev (BGN). Fixed exchange rate with Euro. EU Member since 2007, NATO Member since 2004 Government type: parliamentary republic Last government elections: July 2009 Page 2

3. Bulgaria at a glanceGeography, landmarks and economic overview Kozloduy NPP Veliko Tarnovo Rousse Dobrudja Belogradchik Balchik Sofia Varna Sunny Beach Sozopol Maritza Iztok Sandanski Bansko Plovdiv Page 3

4. 1 Macroeconomic indicators show consistent pre-crisis economic growth and quick post-crisis recovery Real GDP Growth Inflation (HICP) Bulgaria EU-27 Bulgaria EU-27 0.2% 2004 2005 2006 2007 2008 2009 2010 2011 2004 2005 2006 2007 2008 2009 2010 2011 FDI Inflow Unemployment € mln. 9,052 Bulgaria EU-27 9.2% 6,728 6,222 6.9% 6.3% 3,152 2,736 2,437 1,779 2004 2005 2006 2007 2008 2009 2010 2004 2005 2006 2007 2008 2009 2010 2011 Source: Bulgarian National Bank, Eurostat Page 4

5. 8 Role of Bulgaria as FDI location has grown significantly for the last 10 years Inward FDI per country ($bn.) Bulgaria 14 Croatia 13 Greece 12 11 10 9 8 7 Czech Republic 6 5 4 Romania 3 Hungary Serbia 2 Slovakia 1 Macedonia 0 -1 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: UNCTAD Page 5

6. 5 FDI in Bulgaria comes mostly from EU countries and is concentrated in four main sectors FDI by host country, 1996-2010 (€ mln.) FDI flows by industry, 1996-2010 (€ mln.) (1) Netherlands 5,746 Real Estate 8,407 (2) Austria 5,203 Finance 7,516 (3) Greece 3,773 Trade 6,489 (4) UK 2,943 Manufacturing 6,475 (5) Germany 2,683 (6) Cyprus 2,219 Construction 2,672 (7) Hungary 1,365 Energy 2,502 (8) Russia 1,316 Telecom 1,968 (9)USA 1,284 Other 2,384 (10) Italy 1,235 Source: Bulgarian National Bank Page 6

7. Why invest in Bulgaria? • Political and business stability • EU and NATO member • Currency board • Low budget deficit and government debt • Low cost of doing business • 10% corporate tax rate • Lowest cost of labor within EU • Access to markets • European Union / EFTA • Russia • Turkey / Middle East • Educated and skilled workforce • Government incentives Page 7

8. Bulgaria enjoys one of the most stable political and economic environments in Southeastern Europe ”the culture of impunity that once plagued Bulgaria has largely gone“ May 27, 2010 • Bulgaria is a member of some of the most prestigious political organizations • European Union member since 2007 • NATO member since 2004 • WTO member since 1996 • Strong commitment to political reform and transparency has earned praise from leading media and experts worldwide • Stable currency • Bulgarian Lev has been pegged to the Euro since the adoption of the currency in 2002 • Currency board backed by IMF „While governments across the euro-zone periphery are on the ropes or have been felled by the economic crisis, Prime Minister Boyko Borisov's government has drawn international accolades for cutting spending while maintaining high levels of public support.” September 10, 2011 Page 8

9. 0 Government financial indicators are remarkable not only in the region, but on a pan-European scale Average government debt (2005-2010) Greece Italy Belgium Portugal Austria Germany France Hungary Malta Cyprus United Kingdom Netherlands Iceland Norway Poland Spain Ireland Turkey Sweden Finland Croatia Czech Republic Slovenia Denmark Slovakia Lithuania Bulgaria Romania Latvia Luxembourg Estonia -9% -8% -7% -6% -5% -4% -3% -2% -1% 0% 1% 2% 16% Average budget deficit/surplus (2005-2010) Source: Eurostat Page 9

10. In 2011, Bulgarian economy maintained its excellent performance despite global challenges BG Expected real GDP growth, 2012 Budget deficit for 2011, % of GDP Egypt Hungary 0.5% Greece United States United Kingdom 0.6% Japan United Kingdom EU-27 0.6% Spain Czech Republic 0.7% Poland France Slovenia 1.0% India Netherlands Slovakia 1.1% Euro Area Italy United States 1.5% Czech Republic Denmark Romania 2.1% Austria Brazil Bulgaria 2.3% China Poland 2.5% Turkey Germany Macedonia 2.5% Sweden Switzerland Lithuania 3.4% Hungary Source: Eurostat, The Economist, National Statistics Page 10

11. 2 Bulgaria is the only country in Europe with a credit rating upgrade by Moody’s since the beginning of 2010 Aa1 A1 Estonia Lithuania Baa1 Bulgaria Hungary Ba1 Ireland Turkey B1 Cyprus Latvia Iceland Portugal Caa1 Greece Ca 01/10 03/10 05/10 07/10 09/10 11/10 01/11 03/11 05/11 07/11 09/11 Source: Moody’s Page 11

12. 0 Bulgaria has one of the lowest business costs in Europe Lowest corporate income tax rate in Europe Cost of electricity for industrial users is 70% of the EU average Lowest cost of agricultural land in the European Union €/kWh, 2011 € / ha, 2008 Bulgaria 1,595 Estonia 0.062 Bulgaria 10% Romania 2,000 Bulgaria 0.064 Romania 16% Hungary 3,000 Romania 0.080 Greece 4,000 Hungary 19% Turkey 0.086 France 5,000 Slovakia 19% Germany 0.090 Czech Rep. 5,000 EU average 0.092 Czech Rep 19% Poland 5,000 Hungary 0.104 Germany 10,000 Croatia 20% Czech Rep 0.110 Spain 11,070 Turkey 20% UK 11,400 Slovakia 0.123 Source: Eurostat; Savills Page 12

13. Bulgaria is only 3 hours flight from all major destinations in Europe, Russia and the Mediterranean region Russia and CIS EU and EFTA Turkey and Middle East Strategic geographic location Major transport corridors pass through Bulgaria Page 13

14. Educated and skilled workforce is among the main advantages of Bulgaria 0 Almost 60,000 students graduate every year from over 50 universities Bulgaria has one of the highest proportions of students abroad from all European countries Iceland 17.8% Business 19,480 Ireland 14.2% Social sciences 8,372 Slovakia 10.2% Engineering 7,178 Bulgaria Education 3,677 Greece Health 3,166 Austria Law 1,553 Germany Architecture EU-27 average Agriculture Romania Other 12,684 Students in another EU / EEA country, % of all Czech Republic Source: National Institute of Statistics, Bulgaria Page 14

15. The government supports specific industries under the Investment Promotion Act (IPA) • Investments must be related to the following sectors: • Manufacturing • Research & development • Education • Healthcare • High-tech services • Warehousing and logistics • Minimum investment amounts must exceed €10m • €3.5 in regions with high unemployment and €2m for investment projects in high-tech services • Benefits for certified investors include: • Shortened administrative procedures • Preferential acquisition of state or municipal land • Financial support for professional training / education • Infrastructure subsidies • Individual administrative services Page 15

16. Biggest investors are supported through a priority investment scheme • Priority projects can be related to all sectors of the economy, which do not contradict regulation 800/2008 of the European Commission • Subsidies not allowed in mining, primary agriculture production, and shipbuilding • Priority projects should exceed €50m and create at least 200 new working places for a 3-year period • €25 + 100 working places for certain manufacturing projects • €10m + 50 working places for high-tech services and R&D • Priority projects receive all benefits for certified investors, as well as the following: • Lowest possible costs for the acquisition of government and municipal land + waived taxes for land status changes • Working group for project support is assigned by the Council of Ministers • Financial grant scheme for up to 10% of the investment project cost (50% for R&D) Page 16

17. Attractive FDI sectors • Services: • Transport and Logistics • Information technologies • Outsourcing of business processes • Health and tourism related to healthy lifestyle • Industry: • Transport equipment and machine building • Electronics and Electrical engineering • Chemical industry • Food and Agriculture • Resources: • Mining • Oil • Alternative energy Page 17

18. Leading global investors have chosen Bulgaria as an FDI destination Page 18

19. Bulgaria is a R&D, service and manufacturing hub for a number of leading multinationals • In 2008, Lufthansa opened an aircraft repair facility at Sofia airport • State-of-the-art hangars and equipment. Over 500 workers • D-checks, the most extensive scheduled maintenance is carried in Bulgaria • Hewlett Packard has over 4000 people in its Bulgarian office • In 2010 Bulgaria became one of the 6 designated delivery hubs worldwide • Customers include 21 companies from 2011 Fortune Global 500 • Johnson Controls International has one of its major IT & software development centers in Sofia since 2001 • Develops automotive software for BMW, Ford, Citroen • Over 460 engineers work in the Sofia office • Nestle acquired one of the largest confectionery factories in Bulgaria in 1994 • Over €80m invested so far in plant modernization and new equipment • Major brands produced in Bulgaria for the entire CEE market Page 19

20. Bulgaria is a R&D, service and manufacturing hub for a number of leading multinationals • The copper smelter and refinery, owned by German company Aurubis, is the third largest in Europe • Annual turnover exceeds €2m. • The plant was established in 1955 and purchased by Belgian group Umicore in 1997 • Agropolychim is one of the leading manufacturers of nitrogen and phosphorus fertilizers in the region • About 400 ths tons exported to Europe, America, Middle East and Asia in 2010 • Montupet is a leading supplier of automotive aluminum parts • Greenfield investment project in Ruse for €80m • Bulgarian plant produces engine heads for Audi’s 4- and 6-cylinder engines • Sisecam (Trakiya Glass) is the largest greenfield manufacturing investment in Bulgaria • The plant produces glassware, fl at glass, household glassware, mirrors and car glass factories • Clients include IKEA, Coca Cola, Indesit, Bosch, Audi, BMW Page 20

21. InvestBulgaria Agency InvestBulgaria Agency is a Government investment promotion arm, part of the Ministry of Economy, Energy and Tourism IBA services: • Macroeconomic data on Bulgaria • Legal advice • Data on operational costs • Regional information: industrial zones and infrastructure, data on unemployment, skilled labour force and level of education • Recommendation of investment project sites • Identification of potential suppliers, contract manufacturers and joint-venture partners • Personalized administrative servicing • Liaison with central and local governments • Liaison with branch chambers and NGOs Page 21

22. InvestBulgaria Agency Sofia 1000, 31Aksakov Str. Phone: (+359 2) 985 5500 Fax: (+359 2) 980 1320 E-mail: iba@investbg.government.bg Web: www.investbg.government.bg