SOFIA: ECONOMIC AND INVESTMENT PROFILE November, 2018 investsofia.com Prepared by the Institute for Market Economics for Sofia Investment Agency, November 2018 Sofia: Economic and Investment Profile Content Summary ................................................................................................................................................................................ 4 1. Macroeconomic profile ............................................................................................................................................ 10 1.1. Gross Domestic Product .................................................................................................................................. 10 1.2. Structure of the Economy ............................................................................................................................... 11 1.3. Investments .................................................................................................................................................... 14 1.3.1. Expenditure for acquisition of tangible fixed assets (TFA) ..................................................... 14 1.3.2. Foreign Direct Investments ................................................................................................................... 16 1.3.3. EU funds ........................................................................................................................................................ 19 1.4. Export ............................................................................................................................................................... 21 2. Workforce ................................................................................................................................................................. 22 2.1. Demography................................................................................................................................................... 22 2.2. Education ........................................................................................................................................................ 23 2.3. Labour market .............................................................................................................................................. 26 2.3.1. Workforce ............................................................................................................................................. 26 2.3.2. Employment ......................................................................................................................................... 28 2.3.3. Salaries ................................................................................................................................................... 29 2.3.4. Unemployment .................................................................................................................................... 30 2.3.5. Job Vacancies ....................................................................................................................................... 31 3. Local taxes and fees .............................................................................................................................................. 31 4. Infrastructure .......................................................................................................................................................... 32 4.1. Transport Infrastructure .......................................................................................................................... 32 4.2. Digital Infrastructure ................................................................................................................................. 34 5. Sofia as a Business Destination: Comparative Regional Analysis ..................................................... 35 6. Perspectives for the Development of Sofia Region .................................................................................. 37 2 Sofia: Economic and Investment Profile Abbreviations NEA National Employment Agency RIA Road Infrastructure Agency GDP Gross domestic product GVA Gross value added HEI Higher education institution TFA Tangible fixed assets IT Information technologies CPC Commission for Protection of Competition NSI National Statistical Institute PQA Professional qualification acquired FDI Foreign direct investment REI Regional Education Inspectorate SSGE Secondary school of general education 3 Sofia: Economic and Investment Profile Summary Real GDP growth in Sofia and in the country, % Sofia is the biggest regional economy in the country. About 40% 6 of Bulgaria’s GDP is produced in Sofia. 4 The contribution of Sofia municipality to the national economy has been 2 growing at a moderate but stable rate in recent years, which reflects the 0 continuing concentration of economic 2010 2011 2012 2013 2014 2015 2016 -2 activity in the Capital. Sofia provides Real GDP growth - Sofia Real GDP growth - national level the highest living standard, compared to the rest of the country. Source: NSI, Note: *IME calculations Although Sofia was not spared by the economic crisis of 2008-2009, the recession was not as deep as in the rest of the country. Besides, the city managed to fully recover as early as 2010 and, since 2013, the economy of Sofia is expanding. In the last two years – 2016 and 2017 – Sofia’s economy marks a real GDP growth, significantly above the national average. Both the 2009 crisis and the last years of economic growth left a Value added at factor cost of non-financial mark on the structure of the enterprises in Sofia, 2017, % economy of Sofia region. The Other activities; Manufacturing; Administrative biggest change in the structure of 9,8 10,4 Sofia‘s economy, that resulted & supporting Generation & activities; 5,3 distribution of … from the 2009 recession, was the Professional Construction; crisis in the construction sector. activities & 5,0 The sector shrinked almost twice, scientific reaching five per cent of the local research; 8,8 economy in 2017 (according to Real Estate preliminary data). At the same operations; 3,3 time, the manufacturing industry has increased its Creation and Trade & weight in the local economy distribution of information & repairs; 25,8 after a series of investments in the creative products, Transport, areas of Pharmaceuticals, telecommunications; storage & post; 18,2 Automotive, Cosmetics, Optics, and 9,0 so on. By 2017, the Manufacturing industry had a share of 10.4%, showing an increase of more than Source: NSI, Note: *IME calculations two per cent compared to its share before the crisis. The same increase can be observed in the gross added value of the sector of Administrative and supporting activities, which include part of the outsourcing industry (the so-called service call centres). The other part of the outsourcing industry is included in the Professional activities and research sector. These two broad sectors of outsourcing, along with the IT industry (part of the Creation and distribution of information and communication sector), found favourable growth conditions in Sofia in the last few years due to the combination of educated workforce, knowledge of foreign languages and low labour costs. 4 Sofia: Economic and Investment Profile Being the main economic centre in Bulgaria, it is no surprise that Sofia attracts about half of the investments in the country. According to the latest data, about 40% of the cost of tangible fixed assets and half of foreign direct investments were concentrated in Sofia region. By the end of 2017, the Capital had attracted € 12.2 billion of foreign investments or about € 9,200 per capita, which is nearly three times the average for the country. Given that services dominate the Cumulative FDI by 31.12.2017, % of all profile of the municipal economy; it Trade, repairs, comes as no surprise that most of the transportation, storage,… investments in Sofia are directed Real estates precisely towards the service sector. Extractive industry, The subsector of services, that attracts the manufacturing and… largest share of investments in tangible Information and creative fixed assets (29%), is the Trade, repairs, products;… Sofia transport, storage, post, hotels and Professional and administrative activities,… restaurants. Foreign direct investment Construction (FDI) data also confirms the attractiveness of this sector for Others investments – 34% of all FDI by 2017 fall here. This is due to both the high income 0,0 20,0 40,0 and consumption in the Capital and the fact that the city is a well-developed Source: NSI, IME calculations, transport and logistics center. Note: *Preliminary data Other sectors, attractive for foreign investment , are the Extractive industry, Manufacturing, Utilities, Real estate, IT and Outsourcing. While real estate investments were made before the 2009 crisis, those in the Extractive industry, Manufacturing, IT and business services have been rising recently, in line with the rapid growth of these sectors. Sofia is also distinguished by a good absorption of EU funds, which is a major source of public investment. By the end of June 2018, the Capital had absorbed BGN 3.6 billion. The largest beneficiary is the Metropolitan Municipal Company that manages the city’s metro. The export revenue of Sofia-based enterprises has been growing rapidly since 2014, in line BGN equivalence of currency with the expansion of the city’s economy. About export