What are the most dynamic sectors and what could we expect from them?
Optimism and stability. This is the shortest forecast on the economic development of Bulgaria in 2008. Local and foreign analysts expect the economic growth to continue this year and to stand at some 6.4 to 6.5 pct. The main factors determining that growth are the accumulated capital in the economy, a result of the investment activity in the country, as well as the fresh input of EU structural funds.
The sectors expected to mark the greatest rise in 2008 are finance and real estate, Bulgarian macroeconomists say. This will in turn maintain the growth in building construction development, which will also get a boost from EU structural funds. Another promising sector is tourism which is seen to continue its gradual growth in 2008. Here are the most dynamic sectors of the Bulgarian economy and analysts' forecasts for their development in 2008.
Fast moving consumer goods (FMCG) - Hot Competition. FMCG prices are seen to be the biggest mystery of 2008. They started to rise in the second half of 2007 chiefly due to the bad agricultural output on a global scale and the expectations for price levelling with the EU. Duty-free imports from the EU will hardly bring FMCG prices down, since they are usually more expensive than local products. The big question is if the flat tax, introduced in 2008, will affect consumption. It is most likely that people with an average and above average income will focus their purchasing decisions on good quality and branded products, unlike those with low income who will become more sensitive to prices. Worldwide discounted chains are expected to enter the Bulgarian market in 2008, increasing competition, bringing FMCG prices down, and leading to consolidation of the so-called 'neighbourhood shops' which will in turn begin a consolidation process to survive.
Real estate - Gradual Rise. This is the classic 'pendulum market', swinging between extremes because of the presence of many unprofessional players. So far each success in real estate was acompanied by a price rise and made the players expand supply in anticipation of a new success. The forecast for 2008 is that the pendulum will slow down. Analysts and developers have already started to note a withdrawal of interest from low quality vacation complexes and residential housing built before 2000. That trend is expected to deepen this year. Although the demand in the three main sectors of the real estate industry - residential, office and retail - continues to be higher than the supply, the consumers have realised they have a choice and have raised their requirements accordingly. A balance between demand and supply in the sector is seen to be reached no earlier than 2009 or 2010.
Telecommunications - Oligarchy under Threat. Some serious changes are expected in this sector in 2008. Currently the telecom sector in Bulgaria is dominated by the three big players Mobiltel, Globul and BTC, with its GSM unit Vivatel. In the field of fixed telecommunications alternative operators will rely on the liberalisation of the market which will allow them to enter it without the huge investments made by the the giants in previous years. In the cell phone sector WiMAX technology is coming to the fore, with providers hoping to break the rule of the GSM. So far none of this has happened in Europe, but there are indicators that the process will begin soon.
Finance - Future on the Scales. In terms of figures the business of Bulgarian banks looks more than healthy; it is growing quicker than the economy as a whole, expecting to have closed 2007 with a growth of 30 pct. The reason for this is simple, Bulgarian firms are expanding and looking for funding, and citizens are still not as debt-bound as their western European counterparts. This impetuous growth made the Bulgarian National Bank (BNB) take some restrictive measures by raising the minimal obligatory bank reserves, but this did not lead to a drop in loans. it is very likely that BNB will use some other restrictive tool in 2008, yet bankers forecast a slowing down in the credit activity in the year; from a 60 pct growth in 2007, to between 20 or 30 pct in 2008.
The more significant change in the sector is expected with regard to more expensive funding, since the higher interest rates in the EU and the U.S. subprime crisis have not been felt in the Bulgarian finance sector so far.
On the corporate level there may be some big deals coming in 2008, mainly in the field of insurance, pension insurance and investment funds.
IT sector - the State Orders. Two things will be stirring the IT sector in the following 12 months: government public procurement orders and telecommunications development. Among the biggest projects for the state administration are the launch of e-government, the purchase of software for the needs of ministries and other institutions, and the development of Information systems for the National Revenue Agency (NRA) and the National Health Insurance Fund (NHIF). Perhaps the most interesting state public procurement order in the field will be the development of a system for the replacement of the identity documents of Bulgarian citizens, to include biometric data.
Not all, however, depends on government orders. In 2007 two risk finance companies, NEVEQ and a regional fund of giant Cisco, declared interest in Bulgarian IT firms. An indicator that the Information technology sector is developing well was the permanent shortage of IT specialists in 2007 and the sharp increase in their average pay. Currently 32,000 people are working in the IT field in Bulgaria, according to a report by analyst company IDC. That number is expected to rise by some 20 pct in the next four years.
Advertising - The End of Media Authority. In this sector 2008 will be the year of variety. Part of media agencies will break free from the tyranny of the two largest TV channels and their advertising departments because of the expanding variety of the media market. In 2008 things will become harder for advertisers, too. They will have to put more effort and investments into the design of advertising messages, which will be good for the audience as target of these messages. The appearance of new TV channels and the upgrade of some existing ones, as well as the boost in printed issues will lead in 2008 to a fragmentation of the TV market, and consequently more freedom for advertisers that will not be forced to work with the two largest in order to get their messages across. The same is true for printed media, as well; with the expected entry of several more world-famous editions the market will be practically saturated, which will allow advertisers to target their audience more effectively.
Energy - the Conflict of Visions. The rise in the prices of energy resources naturally pulls with it energy prices; this will be the hottest issue in the Bulgarian energy sector in 2008. The price increase for natural gas, electricity and heating power will be drastic which will lead to serious conflicts around the rates that energy distribution companies would charge. If the State Energy and Water Regulatory Commission (SEWRC) continues to keep prices low for households, the blow will be taken by the distribution companies and the industry which will as a result become less competitive.
One of the two visions for the sector, that are in direct conflict, focuses on market instruments in the structuring and management of the energy market. The other relies on the leading role of the state and the strengthening of the existing monopolies. Which one will prevail remains to be seen in 2008. The pro-market lobby hopes that the government will list shares in the National Electricity company and Bulgargaz on the stock exchange, which will encourage the competition in the market and will make the management of these companies more transparent. The opposite vision, which is the Economy Minister's plan, is the consolidation of the monopolies, nuclear power plant (NPP) Kozloduy and several other energy supply companies, and the postponement of the privatisation for an undefined period of time.
This year will also see the launch of the construction of NPP Belene, the start of South Stream project for natural gas transfer from Russia to Europe via Bulgaria, and the closing of the deal on the Bourgas-Alexandroupolis oil pipeline from Russia to Greece.
Tourism - Bulgarians Become Important. One of the trends in the sector that will develop actively in 2008 is golf tourism. There are now three golf courses in the country and another five are under construction. Hotel and vacation villages construction will also continue, with the building up of the last free spaces on the seaside, in the northernmost and southernmost parts of the coastline. Mass tourism will gradually move to the south, where it is warmer and prices are expected to fall because of the large supply of hotels. Analysts also expect a rise in individual trips at the expense of package tours, since all segments of the package are becoming cheaper on an international scale, from air tickets to hotel rooms. A new trend is the sector's refocusing on local tourists, through several campaigns for attracting the attention of Bulgarians to Bulgarian resorts. They will, however, continue to travel abroad, again as a result of the global price drop of tourist services.
Cultural and conference tourism will be developing actively in 2008 as well as SPA tourism. Big investments in winter tourism infrastructure are expected to come in a few years.
28/12/07-04/01/08, PP 38-41
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