IN THE MEANTIME, IN VARNA

A positive surge is taking place as companies invest in the Varna region, in northeastern Bulgaria, with projects for shopping malls, office complexes and logistics centres.

Rating agency Standard and Poor's (S&P) announced it had raised its long-term issue credit rating for Varna to BB+ from BB, declaring the city's outlook is "stable" and praising its "improved operating performance".

"The upgrade follows the significant improvement in Varna's operating performance in 2006, in line with other Bulgarian municipalities," S&P's credit analyst Marcin Gdula reported to local press.

While Burgas remains the biggest Bulgarian port, large retailers and other major firms have been drawn to Varna due to its more numerous workforce. Unemployment is reported at around three percent, roughly a third of the national average. Its population estimate of 357,000 is thought by many to underestimate the high number of seasonal workers living in the city in the summer, and the fact that Varna is the centre of a large conurbation stretching along the Black Sea coast into the Thracian hinterland. This has led many to describe it as Bulgaria's second city, a title traditionally held by Plovdiv.

The rating announcement comes at a time when companies and the government are becoming aware of the city's potential. It is a large port at the Black Sea end of Pan-European Transport Corridor Eight, which leads across the Balkans to the Albanian coast and Italy. It is one of 10 crucial corridors in Central and Eastern Europe that have been identified by the EU and national governments as priority areas for investment.

The Hemus Motorway, which will link Varna with Sofia as part of the corridor, is currently under construction, with 129 km out of 443 km completed, including a section from Varna to the city of Shumen. The government, which plans to ask for European Bank of Reconstruction and Development (EBRD) support for financing, hopes it will have chosen a new contractor for the remaining section by the end of 2007.

Some experts in the real estate sector told OBG that Varna is a more dynamic place to invest than the capital Sofia.

UK-listed Orchid Developments has announced it will start the construction of a $131.6 million complex in central Varna in the autumn. The construction is scheduled to take two years and has grown beyond original plans.

Eli Egosi, adviser to Orchid Mall Varna, told local press that the shopping mall would amount to 45,000 sq metres of retail area, with the potential to expand to 50,000. The shopping mall is part of a larger planned scheme of 150,000-200,000 sq metres, including retail, office space, leisure and upmarket residential projects.

Varna is also seeing success as a tourism destination. The province received a total of 4.74m tourists last year, 3.99m of which were foreign tourists. The main attractions are the beach resorts but Varna's grand architecture and surrounding countryside are also attracting interest. British Airways, Malev and Austrian Airlines currently fly to the city, with budget operators said to be eyeing the destination as well.

Tourism development in the province has been so rapid that the mayor, Kiril Yordanov, has banned new construction in several areas for fear of overdevelopment. This may indicate a shift towards middle-to-top-end tourist development that is being seen nationwide.

*Andrew MacDowall, Oxford Business Group analyst