Fdi in Bulgaria

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COURSEWORK

FDI in Bulgaria and the Impact of the Global Financial Crisis

Sofia, February 2012|

Table of Contents

Introduction2
Definitions and registration of FDI2
Factors determining the attractiveness of Bulgaria for FDI5 Challenges for foreign investors10
FDI in Bulgaria before the global financial crisis10
FDI in Bulgaria during the years of the global financial crisis13 FDI in Bulgaria in 200915
FDI in Bulgaria in 201016
Conclusion, recommendations and future prospects18
References:19

Introduction
During the late 1990s, Bulgaria’s geographic location and its low inflation rate made it a popular destination for foreign direct investment (FDI) so that in the period between 2000 and 2005, Bulgaria was viewed as the third most popular FDI destination among the countries in the South Eastern European region. In these years Bulgaria started to receive significant foreign capital and funds which allowed for a transfer of technology, skills and job opportunities. During the last decade, the country became an attractive FDI destination due to three main circumstances. Firstly, because Bulgaria had a rather low GDP, there was significant room for growth, and the stable amount of GDP and rates of inflation Bulgaria achieved during the 2000-2005 period appeared promising. Secondly, the strengthening of the national economy coincided with Bulgaria’s accession to the EU in 2007 which caused further FDI inflow. Thirdly, as a result of regional trade and market cooperation, Greek FDI had already become a major inflow of investment in Bulgaria’s industry. Thus, by the end of 2008 Bulgaria’s national economy had become one of the most FDI heavily reliant countries in the Central and Eastern Europe region, attracting EUR 6,7 billion.1 However, shortly after this FDI growth period, significant problems began to emerge. Ever since Bulgaria’s accession to the EU, the country has been failing to meet EU economic regulation standards. It has had issues with bureaucracy and corruption and, moreover, its cumbersome administrative procedures have not made trading transactions easy. Nonetheless, the most significant factor affecting FDI markets worldwide, the global financial crisis of 2007-2008, saw Bulgaria somewhat less hit than other economies, due mostly to the country’s relative ‘poorness’. Still, with the shortage of worldwide market liquidity and the rise of private debt, Bulgaria’s economy did contract and the flow of FDI significantly decreased.1 Definitions and registration of FDI

In accordance with the requirements of the adopted statistical conventions a direct investment in the country is an international investment, in which the direct investor, resident of a foreign economy, acquires a lasting interest (at least 10 % of the equity) in an enterprise resident of the Bulgarian economy (direct investment enterprise). The direct investment includes both the initial transaction, through which the relationship between the direct investor and the direct investment enterprise is established, and all subsequent transactions between them. The transactions can be both towards increase/decrease in the liabilities of the direct investment enterprise to the direct investor, as well as towards increase/decrease in the claims of the direct investment enterprise to the direct investor. Therefore, the BNB reports both accomplished investment and disinvestments. The basic principles of reporting direct investment in the country are: * only actually received, and not contracted, amounts are recorded, and, * when financial instruments are used for settlements, they must be recorded at their market price, and not at their nominal value. In accordance with the standard presentation of the balance of payments, the direct investment in the country item comprises: 1. Equity capital – acquisition/disposal of shares and equities (in cash and in kind) by non-residents in/from...
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