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The competitive advantages of the Bulgarian economy

Assessments of the Bulgarian economy by national and foreign experts in recent years indicate that the country has achieved a sufficient level of macroeconomic stability and that market mechanisms are functioning well, allowing for a more effective allocation of resources. Bulgaria has had a GDP growth of over four percent for six consecutive years, and more than 5.5 percent for the past three.

The main reasons for this are:

  • increased internal demand
  • increased investment
  • increased foreign trade

It is a positive indication that Bulgaria was for the first time in its history included in the World Competitiveness Yearbook 2006, the most authoritative rating of competitiveness of the world's economies, which has been published since 1989 by the Institute of Management Development (IMD). This yearbook is the investor's favourite instrument for an initial assessment of investment risk, because of its internationally accepted and comparable quantitative data.

The inclusion of Bulgaria in this elite club as 47th among 61 economies is in itself a good signal for investors about the competitive advantages of the Bulgarian economy. Bulgaria is ranked ahead of countries such as Turkey, Brazil, Mexico, Russia, Argentina, Italy, Romania, Poland and Indonesia.

The competitive advantages of business are mainly the result of low labour costs. Bulgaria ranks second in terms of unit labour costs and first in terms of low executive personnel salaries. Although ranked 52nd in terms of inflation and 53rd in successful reduction of unemployment, Bulgaria still has significant advantages in the macroeconomic indicators of competitiveness: low corporation tax (2nd place after Ireland), a balanced budget (6th place), reduced state debt (5th place), per capita economic growth (10th place), foreign investment as a percentage of GDP (10th place), growth of foreign assets in the economy (2nd place), openness of the economy and export growth (16th place) and services (7th place).

In short, Bulgaria offers the following competitive advantages

  • economic and political stability
  • a functioning market economy
  • predictable investment risks
  • a relatively good investment environment
  • very competitive labour costs in comparison with other European countries
  • a strategic geographic location
  • liberalised access to markets with over 560 million consumers
  • boosted depreciation rates (50 percent) for investment in new machinery, production equipment, computers, peripheral components, and software
  • low corporation tax rate of 15 percent for 2006, scheduled to drop to 10-12 percent in 2007
  • zero percent profit tax in over 100 municipalities with high unemployment
  • a special preferential VAT regime for imports of goods for investment projects of over 10 million leva
  • over 160 licensing or regulatory regimes waived or simplified, comprising 83 percent of all such regimes
  • NATO membership, which spells increased security and stability
  • projected EU membership
  • low direct costs for registering a new business (132 euros)

McDonaldsThe Big Mac Index

This May The Economist published the 20th Big Mac index rating, which was first launched in 1986. The index is a popular indicator of actual exchange rates, taking into account the price of a single product, the Big Mac hamburger, sold by the McDonald's company in 120 countries worldwide. It also gives the exchange rate of a national currency that would make the price of a Big Mac identical to that in the United States.

For example, the price of a Big Mac in Bulgaria at the end of May was 2.98 leva, while it cost $3.10 in the United States at that time. This means that if the prices in the two countries had been equal, the exchange rate should have been 0.96 leva to the dollar. The actual exchange rate, however, was 1.54 leva to the dollar. In other words, the Bulgarian lev was undervalued by nearly 37 percent. The picture gets even clearer if we add the research of the Swiss UBS bank, whose experts have calculated that if a Sofia citizen has to work 69 minutes to buy a Big Mac, in New York people need to work for only 13 minutes, compared to a world average of 35 minutes.

Citizens in the Bulgarian capital have to work 19 minutes for a kilo of bread and 31 minutes for a kilo of rice. In comparison, for Bratislava the respective figures are 55 minutes for a Big Mac, 21 minutes for a kilo of bread, and 20 minutes for a kilo of rice; for Budapest: 48-14-24 minutes respectively; for Bucharest: 69-31-25; for Prague: 39-14-14; for Warsaw: 43-17-18; and for Zurich: 15-10-5.

Earning Levels

Though Sofia remains one of the least expensive capitals in the world (61st place among 71 cities studied, according to Swiss UBS bank), the income of its citizens is correspondingly low. Hourly pay in Bulgaria is $1.60, while in the large European and North American cities it is over $18. In most Eastern European and Asian cities hourly pay is between $4 and $5. According to National Statistical Institute of Bulgaria data, average gross monthly pay in the country is slightly over 170 euros. If we assume that some private sector earnings are hidden, average gross monthly pay would be slightly over 210 euros.

Using "purchasing power parity", which eliminates differences in price levels, Latvia has the lowest minimum pay in the EU at 240 euros. By contrast, in Bulgaria it is 191 euros and 189 euros in Romania.

Bulgaria propertyProperty Prices

Real estate is a favourite area of investment and this sector in Bulgaria is highly profitable compared to West European countries. Emerging market No.1 was how Bulgaria was defined at last year's real estate fair in London's ExCel Docklands conference centre. The advantages of the Bulgarian market are as follows:

  • year-on-year property price increases averaging 20 percent
  • lowest prices in Europe
  • a highly developed rental market

If you compare real estate prices in Bulgaria, Romania and Croatia, you will notice that prices in the latter two countries are between 1.5 and 2.5 times higher than in Bulgaria for all market segments. The prices per square metre are tending to equal average monthly incomes. And, in all these countries, the time needed to buy a property is about three weeks.

Read 5941 times Last modified on Wednesday, 29 June 2016 12:28

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