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FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 BULGARIAN STOCK EXCHANGE ECONOMIC AND POLITICAL DEVELOPMENTS Economic and Political Environment The parliamentary elections of June 2005 were full of surprises, including the rise of a new ultra-right party, Ataka, which won 21 seats. The results of the elections were complicated and finding a government proved difficult. Finally a coalition was formed, encompassing the Socialists, the National Movement of Simeon Saxe-Coburg and the Movement for Rights and Freedom. The government’s main goal was joining the EU as of 1 January 2007. In the process of integration into the EU, Bulgaria has made many achievements in reforming and boosting the domestic economy. The current trade balance favours imports and certain structural problems remain, though this should not obscure the positive trends–demand for various goods and services is rising, unemployment is declining and Bulgarian exports are becoming more competitive in global markets. The next major goal for the Bulgarian government will be toprepare the country for entry in the Euro Zone by 2009-2010. Consolidation was the driver behind recent momentum in the banking sector, with Germany’s HVB and Italy’s Unicredito merging their previously acquired Bulgarian assets into a local powerhouse. Key indicators showed record-breaking growth in deposits, loans, assets and profits – a nod to the general upswing of the economy. Authorities have tightened regulations, which should help banks thrive when competition increases following EU accession. The Bulgarian Stock Exchange has been on something of a roll, boosted by the listing of Bulgarian Telecommunication Company and increased investor enthusiasm during the preaccession period. Weak liquidity and a lack of attractive listings remain a problem, though with a slate of upcoming offerings and talks with regional markets like OMX, Deutsche Boerse, Borsa Italiana, Athens Stock Exchange and Vienna Stock Exchange, all that could soon change. Insurance has become a booming business in Bulgaria. Though the market is still limited and largely dominated by motor coverage, the introduction of a new Insurance Code at the end of 2005 helped to build further market confidence and boost Bulgaria’s average insurance expenditure per person closer to levels in new EU member states like Poland. Much significance is given to the energy sector. Most of Bulgaria’s fuel imports come from Russian giant Gazprom, but it is also partnering with international firms to develop its own modest reserves. For power generation, the country relies on hydroelectric, nuclear and thermal plants, with a great deal of Soviet-era excess capacity in some segments. Liberalisation and privatisation are making steady progress. Tourism has become one of the most important economic sectors. With visitor arrivals up an annual of 10-12% per year since 2002, Bulgaria is an increasingly popular destination for holidaymakers seeking sun and ski fun. However, overdevelopment is becoming a concern, particularly along the Black Sea coast, and the hotel boom threatens to ruin the quaint charm that attracted tourists to the Balkan nation in the first place. Great efforts have been made lately to develop golf tourism. The construction industry has shown very good results, with solid GDP growth and a skyrocketing number of building permits issued. Large-scale retail, commercial and infrastructural projects kept busy builders throughout 2006. The real estate market is equally buoyant, propelled by a flood of foreign investors. The office and retail segments remain equally strong, and a number of major projects are in the works. Another well-performing business field is the mobile sector. There is intense competition for new subscribers between the three major operators. The telecoms sector will likely see a flurry of activity as new providers compete for tenders to provide integrated services to the country’s multiplying businesses. Strong PC sales, increasing state spending and an abundance of foreign investment are fuelling growth in information communication technology (ICT), while outsourcing looks set to keep the sector booming. Industrial output is set to grow by doubledigits through 2007–without including activity in the grey economy, which is slated for a clampdown. EU accession looks to be both a boon and a bane for industrialists, as the open market will bring in many foreign firms looking for cheaper production, subsequently raising the cost of labour. Facing a flood of cheap Asian imports, the textiles industry needs to move upmarket to survive, while building materials are thriving on the back of the country’s construction boom.* * Information provided by the Bulgarian Stock Exchange Key Information Contacts Financial Supervision Commission www.fsc.bg Central Depository www.cdad.bg Bulgarian National Bank www.bnb.bg Ministry of Finance www.minfin.government.bg National Statistical Institute www.nsi.bg 2005-ORIGINS OF GROSS DOMESTIC PRODUCT (%) 2005-COMPONENTS OF GROSS DOMESTIC PRODUCT (%) Services Industry Agriculture & forestry Private consumption Public consumption Gross fixed investment Change in stocks Exports of goods & services Imports of goods & services 30.4 80 78.8 77.4 60.3 9.3 70 60 60.8 50 40 30 20 10 0 9.8 23.8 4.2 PAGE 64
FEDERATION OF EURO-ASIAN STOCK EXCHANGES SEMI ANNUAL REPORT APRIL 2007 BULGARIAN STOCK EXCHANGE BULGARIA ECONOMIC CHARTS AND TABLES 2002 (a) 2003 (a) 2004 (a) 2005 (a) 2006 (b) GDP at market prices (Lv billions) 32.3 34.5 38.3 41.9 48.7 GDP (US$ millions) 15,621.9 19,999.4 24,340.0 26,697.1 31,254.4 Real GDP growth (%) 4.9 4.5 5.7 5.5 5.8 Consumer price inflation (av; %) 5.8 2.3 6.1 5.0 7.4 Population (millions) 7.8 7.8 7.7 7.7 7.6 Exports of goods (FOB) (US$ millions) 5,354.1 7,081.4 9,847.6 11,754.2 14,600.3 Imports of goods (FOB) (US$ millions) 7,012.6 9,657.3 13,490.9 17,121.0 20,637.4 Current-account balance (US$ millions) -319.0 -1,022.2 -1,416.3 -3,004.1 -4,034.3 Foreign-exchange reserves excl gold (US$ millions) 4,407.0 6,291.0 8,776.0 8,040.5 9,177.2 Total external debt (US$ billions) 11.5 13.4 15.7 15.9 17.9 (b) Debt-service ratio, paid (%) 16.3 10.1 15.9 21.9 14.2 (b) Exchange rate (av) Lv:US$ 2.070 1.727 1.573 1.571 1.558 (a) Actual. (b) Economist Intelligence Unit estimates. ECONOMIC FORECAST SUMMARY 2004 (a) 2005 (a) 2006 (b) 2007 (b) Real GDP growth (%) 5.7 5.5 5.0 4.5 Consumer prices (% change) 6.1 5.0 7.3 4.5 Budget balance (% of GDP) 1.7 2.3 2.9 1.3 Merchandise exports (US$ billions) 9.85 11.74 14.59 18.55 Exchange rate (Lv:US$1) 1.57 1.57 1.56 1.41 2005-PRINCIPAL EXPORTS (FOB) (US$ millions) Clothing & footwear 1,950 Iron & steel 966 Other metals 1,194 Chemicals, plastics & rubber 672 2005-PRINCIPAL IMPORTS (CIF) (US$ millions) Crude oil & natural gas 2,892 Textiles 1,701 Machinery & equipment 1,767 Chemicals, plastics & rubber 1,233 2005-MAIN DESTINATIONS OF EXPORTS (%) 2005-MAIN ORIGINS OF IMPORTS (%) Italy Turkey Germany Italy Germany Greece Other Russia Turkey Other 12.0 10.5 9.8 15.6 13.6 9.0 9.4 5.0 58.3 56.8 The Economist Intelligence Unit Ltd, September 2006 PAGE 65
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