ISSN: 2560-1601

Vol. 22, No. 2 (BG)

Oct 2019

Bulgaria economy briefing: FOREIGN INVESTORS WILL BE ABLE TO BENEFIT SOON FROM THE NEW BULGARIAN INDUSTRIAL ZONE ACT Evgeniy Kandilarov

1052 Budapest Petőfi Sándor utca 11.

+36 1 5858 690 Kiadó: Kína-KKE Intézet Nonprofit Kft. [email protected] Szerkesztésért felelős személy: Chen Xin

Kiadásért felelős személy: Huang Ping china-cee.eu 2017/01

FOREIGN INVESTORS WILL BE ABLE TO BENEFIT SOON FROM THE NEW BULGARIAN INDUSTRIAL ZONE ACT

The Industrial Zones development is an important factor for attracting new production enterprises. For a long time the Bulgarian state is trying to stimulate Green field investments and to help attracting of new investors through a system of incentives formulated mainly in the Encouragement of Investment Act and Corporate Income Tax Law. Up to the end of 2005 the following industrial zones are working or are in a process of creation in : Maritza Industrial and Commercial Zone (Radinovo village near by city), Industrial Zone, Industrial and Commercial Zone, Hi-Tech Industrial Park Opticoelectron – Panagiurishte city, as other industrial zones with different development stages like the zone in Rousse, , and . One of the best successful examples for Public-Private Partnership is Rakovski Industrial Zone which is located near Plovdiv city. In accordance with expert’s opinion Rakovski Industrial Zone, which development has started in the middle of 2004 and it enjoys a great interest so far, has all premises to become in Zone №1 in Bulgaria. Rakovski Industrial Zone is the first green field development of such scale, which offers tailored to particular needs space for rent and sale. The tendency towards consolidation, i.e. development of large-scale projects, rather than stand-alone facilities is valid for the industrial real estate sector as well. Industrial parks are actually the oldest cluster developments. Industrial parks are usually located either at ports /sea or river/, close to airports if they rely mainly on air-freight, on railroad terminals and/or on main transportation corridors. It is crucial for an industrial development to be located on the crossroads of strategic locations next to major transportation arteries so that the supply and distribution is obstacle free. Due to the strategic location of Bulgaria, 5 out of the 10 Trans- European Corridors pass through the country. And 3 out of these five pass in close proximity to Rakovski Industrial Zone – the first industrial cluster in Bulgaria, facilitating the movement of goods all around Europe. The experience of the Central and East Europe approve convincingly that the industrial zones are centers for foreign and local production enterprises development and bring to a catalytic effect for attracting investments and local economies development. Disposing of new manufactures in industrial zones in Bulgaria in the recent years seems to get a great interest from local and foreign investors. Reasons are pretty clear - such a union of productions, facilitates their own functioning, reduces the expenses, raises the competitive

1 power and it has proved its world-wide effectiveness a long time ago. Besides that kind of unions involves certain incentives by the side of Bulgarian state. It is an unwritten rule that the investments are in a direct ratio to the good business climate, good technical infrastructure and the good quality of life. Bulgaria enforces the European industrial policy principles in developing and implementing of the competitive power raising politics, for enterprise developing of the small and middle companies, encouraging the export business and the investments. The main purpose of the industrial policy is entire improvement of the business environment so the Bulgarian economy could resist the EU market forces competitive pressure. Up to now the existing Industrial and Commercial zones in Bulgaria developed for the last more than ten years are: Maritsa Industrial and Commercial Zone, Rakovski Industrial Zone, Kuklen Industrial and Commercial Zone, Parvomai Industrial Zone, Industrial Park. All the zones offer attractive conditions for establishing production, warehousing and logistics. All projects are supported by the State, the Government, the Municipal Authorities and the Foreign Chambers of Industry and Commerce in Bulgaria. With local elections approaching in Bulgaria (the date of elections is October 27th ) there has been increasing talk of the establishment of new industrial zones in different regions of the country. The current mayor of announced that it is planning to build four new industrial zones at different districts of the city. The largest one of them will be in the northern regions of the capital - Kremikovtzi, Novi and Vrubnitsa. Industrial zones will also be built in Mladost, Nadezhda and Ovcha Kupel districts, but they will be smaller in size. The area, especially the one in Kremikovtzi, is extremely attractive with its transport connection - railway transport, proximity to airport, roads. In municipality plans is providing a subway connection to this area - ground, light subway, the mayor announced, adding that conditions for health care in the area and training centers would be created in parallel. According to the Market Economy Institute, Sofia has attracted 54% of its investments in Bulgaria and produces 40% of the country's GDP. In the economy of the city, in recent years, the biggest growth has been in the IT sector and outsourcing of business services, the growth there is almost 200% over the last 10 years. Over 92% of Bulgarian technology companies are based in the capital city and 72% of Sofia employees are here. All this means that building new Industrial zones will most probably attract more investments in the capital city. The Mayor of also presented a project for the construction of the "largest industrial zone in Bulgaria" between Sliven and . The Municipality of Sliven is planning changes in the status of agricultural land in the area of Trakia highway, so that industrial sites can be

2 built there. This was announced, regarding the project for a common industrial zone between Sliven and Yambol. The terrains will be included in the general development plan of the area, so that in the case of investor interest there will be an opportunity for rapid change of the status of the selected terrains. The Municipality of has also signed a Memorandum for the construction of an Industrial Zone. The document was signed between the Executive Director of the National Industrial Zones Company and the provisionally acting Mayor of Blagoevgrad. This marks the beginning of the practical implementation of the large-scale project, which is expected to attract a number of Bulgarian and foreign investors in Blagoevgrad. It is envisaged that in the next year and a half the future industrial zone will actually start functioning. It will be located on 115 acres of municipal land, which is located next to the main road E-79. The location of the future industrial zone is expected to attract investment from small and medium-sized businesses, including foreign companies, with the aim of focusing the demand for high-tech manufacturing and high value-added logistics. Investments will be sought to create a well-paid and skilled workforce for the city. Negotiations on this project have been ongoing for one year. There has been built a road connection to the terrain, a substation for the necessary capacities, the treatment plant is nearby, it is only necessary to build the infrastructure on the spot. The terrains in the future Business Park will be sold to potential investors at minimal prices and the National Industrial Zones Company will guarantee investors to carry out their project. They will sign contracts with clauses, one of them being, if within three years the investors do not build their site, the land will be returned back. The National Industrial Zones Company is 100% state-owned company specialized in industrial park development, management of industrial zones and innovation centers, provision of additional services to investors. Six of the projects of the National Company have already been operating: in Sofia, Burgas, , Ruse, and Varna. The company assists investors in realizing projects in economic zones with built up infrastructure, first-class locations and transport connections. Five projects of the Company are still under development - in , , , Telish and . Meanwhile the mayor of city of Burgas also announced that it is planned to create five new industrial zones with the construction of their supply and internal infrastructure. They are expected to attract and retain the attention of the business and especially of many external investors. This should provide a perspective for the development of the Burgas business and the region as a whole. As early as 2020, more than 20 new businesses should start working in Burgas. Preliminary work has already begun on the establishment of the following new industrial zones: the Copper Mine Zone, the Ravnets Zone, the Black Sea Zone, the Ninth

3

Kilometer Zone and the Dolno Ezerovo Zone. The development of the zone, whose land has already been bought at 80%, continues. In recent years, leading companies in the IT and Outsourcing industries have recognized Burgas as a loyal partner and a promising place to work and live. It is supposed to be only the first step to the new opportunities of Burgas to attract high-tech companies. It is envisaged that in the coming years, hundreds of new jobs will be filled by local staff and specialists from home and abroad. All these announcements from different municipalities in the country for plans of building new Industrial zones sounds in tune with the statement of the Bulgarian Deputy Prime Minister Tomislav Donchev. A few days ago he spoke about the need and the potential of Bulgaria for 7 to 10 new industrial zones in the country and pointed out that there is huge potential for one to be built between and . According to him, the most important thing is to ease the procedures for investors, but this should also be regulated by a special law. He also argued that in the coming years, industrial zones should be subject to different types of incentives, but with a clear regulation and commitment from the state and local authorities to build accompanying infrastructure. According to him, a natural evolutionary step for this is the unification of different municipalities. While it is logical that all these news about future plans for new Industrial zones all over the country will appear shortly before the local elections, they are undoubtedly also the result of longer processes flowing into Bulgarian economy. It is more than sure that Bulgaria needs more industrial zones to the south and to the north, part of the country. Whether they are state-owned, municipal or private, it does not matter, as there is a lot of interest. The Bulgarian Deputy Prime Minister Donchev pointed out also that investors want things to happen immediately, and in this term we need an industrial zones where projects will take a shorter time to happen because of the existing infrastructure. Donchev pointed out as well that the big goal of the government is to speed up the process, so that granting authorizations will not take a year or a year and a half. “Modern business is fast and we must issue permits in advance”, the vice-premier said. Speaking In the same direction the Bulgarian Minister of Economy during the Conference of Honorary Consuls of the Republic of Bulgaria announced that only a New Concept For the Development of Industrial Zones Will Increase Investor Interest in Bulgaria and this new concept will be implemented in a New Industrial Zones Act which has to be ready very soon, so everyone who wants to come and do business in Bulgaria will be able to take advantage of it., the Minister of Economy said. This key news confirmed by the Bulgarian Deputy Prime Minister Donchev who announced that that several state agencies are currently drafting the new Industrial Zones Act. Its main purpose will be to shorten and ease the

4 procedures for entrepreneurs, since now they have to wait for years. According to the current laws, if an investor likes a plot of land that is agricultural land, it takes 2-3 years to complete all the procedures, which is unacceptable. The new law should facilitate procedures and support the construction of new industrial zones, with the financial commitment of the state to the construction of the main supply infrastructure - roads, electricity, water, gas. Perhaps some of the procedures related to land regulation, for example, will also be assisted. This way Ministry of Economy will provide institutional partnership of the private sector in the field of attracting investments and creating industrial zones. The growth in e-commerce would also increase demand for industrial real estate. Referring to statistics, Bulgarian Prime Minister Borisov said that in 2018 the sector is seeing a surprising rate of development, with the market currently focused mainly in Sofia. The capital occupies about 50% of the market, Plovdiv - 25% and the rest - 25% are in the cities of Burgas, Varna, , Veliko Turnovo, Gabrovo, Ruse, Sliven and other smaller cities. The new concept for the development of industrial zones has to increase investor interest in Bulgaria. Actually one of the leading factors for such a concept for Industrial Zones development is the change in the Bulgarian industry, which has been steadily going on for the last 10 years. After the crisis, traditional sectors of the Bulgarian industry, such as clothing manufacturing, for example, are losing weight - both in terms of exports and in number of employees - at the expense of industries that are characterized by higher added value - for example, electrical equipment, automotive parts, machinery and equipment. These processes clearly highlight the need to set up and develop new industrial sites to take over new industries. Another important factor is the undisputed success of the leading investment destinations in Bulgaria - Sofia and Plovdiv. The bottom of the number of employees in the industry in Bulgaria is in 2013, when the employed in the sector reach about 490 thousand people. By 2017, it has grown by nearly 32,000 people, but this growth is not evenly distributed across the country. The largest growth of employees in the industry is concentrated in the leading two centers - an increase of over 9 thousand employees in the Plovdiv region and an increase of over 6 thousand employees in the Sofia-city and Sofia districts. Plovdiv and Sofia-city are the two centers that combine a large city with wide periphery and developed industrial sites. These are the two centers that for years have been structured in presenting themselves as investment destinations to foreign investors. The development of the areas around the capital is hardly surprising, but the change in Plovdiv is undoubtedly attracting attention. The joint work of several municipalities and the unification of the industrial zones around Plovdiv under the cap and brand of the Thracian

5

Economic Zone results and provokes interest from other major cities to develop and promote their own industrial sites. While in Plovdiv, the leading factor is private initiative - in fact, we have a private area operator, in most other cities the development of the Industrial Zones in recent years is happening with the support of the already mentioned state-owned National Industrial Zones Company. In the general case, the municipality gives the land on which it wants to develop the industrial area, and the state company provides the funds to build the necessary infrastructure. Not that the municipalities cannot find alternative ways to develop their industrial terrains, incl. in partnership with private players, but the ready-made funds that the National Industrial Zones Company provides make almost everyone to take the advantage of that opportunity. The state- owned company already has six operating zones, five are under development, and many memorandums of cooperation with various municipalities. Assuming that there will be indeed new 7 to 10 Industrial zones in the country to develop, most of which are likely to benefit from state-owned funds, then a large state-owned industrial zone operator across the country will increasingly be required. The statements of the last days, show that in the coming months a regulation for the operators of industrial enterprises is to be drawn up. It will be interesting to see what the role of the municipalities in the area management will actually be and whether the centralization of the management in the state-owned company is the right course. Regardless of the legal framework for the management of specific zones, it is important for municipalities to continue on the path of cooperation and to present themselves (branded) as investment destinations beyond the scope of specific industrial sites. Therefore, the example of the merger of Sliven and Yambol is very good news as for the first time two regional centers - not a large center and periphery - are being promoted together. There are many more options. It could be a possible new zone between Gabrovo and Sevlievo, or for example an association between Stara Zagora and , which are currently working separately with the National Industrial Zones Company. In conclusion we have to admit that this kind of economic political activity and the announced new concept for the development of the Industrial areas all over the country is definitely a step into the right direction for the stimulation of the Bulgarian production Industry as one of the key sectors of the Economy and its vitality.

6