Investment Fall 'Threatens Bulgaria Recovery'

2010-07-28

The sharp fall in foreign investment into Bulgaria could further delay the country’s recovery from the economic crisis, leading economists have said. Their comments on Tuesday came a day after the Bulgarian National Bank, BNB, announced foreign direct investment fell to €358.5 million - a drop of almost 80 per cent for the first half of the year compared to 2010. Petar Ganev, an economist from the Institute for Market Economy, told Balkan Insight: “The fall in foreign capital is having a serious effect on the economy, as hopes for sustainable recovery and growth are closely tied to the amount of foreign investments. “Moreover, we won’t have sustainable recovery and development unless we manage to increase the flow of foreign capital. ”Lachezar Bogdanov, a managing partner of Industry Watch, a local think-tank, also said reversing the current negative trend is the only way for Bulgaria’s economy to recover quickly and start to grow. He said the drop in foreign capitals was a “worrisome trend”, as it showed Bulgaria's economy still worried investors. Bogdanov said: “Last year’s fall ... was mainly due to the shock of the crisis. "But now the shock is over and the fact that foreign cash is still decreasing just comes to show that investors see Sofia as less attractive,” he said, adding that some states, like Estonia, had already managed to lure back investors. Foreign cash has been the main source of Bulgaria’s remarkable growth for the last decade, as local production and capital in the poorest EU member state are scarce, with the biggest investors being the Netherlands, Russia and the United States. However, Sofia has experienced a significant drop in foreign investment since the beginning of the economic crisis. It managed to attract a meagre €2.8 billion in 2009, while a year earlier the figure was more than twice as high at €6.5 billion. Despite some positive developments - Bulgaria’s export increased by 36.7 per cent in April year-on-year and the unemployment rate in the country has been decreasing slowly for the last five months, falling to slightly more than nine per cent in July - Sofia is still far away from the investment boom it has experienced before. Bogdanov said uncertainty in government policies also discouraged investors from bringing their money in Bulgaria. “Of course, the risk of a budget deficit, the risk of a potential Greek scenario, the risk of rising taxes, and the delay of the country’s plans to enter the eurozone, send bad signals to investors,” he noted. “In times of crisis when there’s a limited free financial resource to invest, Bulgaria has started to lose its competiveness," Ganev said. Both Bogdanov and Ganev said the cabinet should improve the current business climate by curbing unreasonable spending, starting urgent reforms in the public sector and offering better regulations to do business in Bulgaria.