Iana Dreyer in Brussels -

Economic and banking sector problems continue to cast a shadow over Bulgaria’s growth prospects and have delayed its entry into the mainstream European world of purely commercially driven trade finance. Yet now some players are betting on the country’s potential as growth prospects improve and EU-funded infrastructure projects are given the go-ahead.

Bulgaria’s economy has been on a roller-coaster ride ever since the global crisis hit the country hard in 2009. Its GDP growth rate peaked at 6.9% in 2007, stumbled by 5% in 2009, after which growth rates have been oscillating between 0.6% and 2.0%, according to the International Monetary Fund (IMF). 

Bulgaria is a small market of 7.3mn people. Its later entry into the EU in 2007 alongside Romania and its notoriously difficult business environment mean that foreign investment in manufacturing has been much less dynamic there than in other Central European countries. This in turn means supply chain trade and imports of equipment such as machinery are not seen to the same degree as in other new EU member states. Regionally, Bulgaria does not stand out in this regard. This pattern of less dynamic growth, trade and investment is typical of Southeast Europe, comparable to that seen in Serbia, Croatia or Romania.

Today, Bulgarian trade is on a more solid growth path, despite important annual swings since 2009. In 2011 and 2013, exports grew 12.4% and 12.3% respectively, though fell by 0.8% in 2012. They stood at a relatively modest 4.6% last year. Import volumes grew above 7% in 2011 and 2012, though they were at a low 2.7% last year. Germany’s Trade & Invest sees some growth potential in 2015 in Bulgaria’s automotive, chemicals, energy, environmental equipment and medical devices sectors. It sets high store in Bulgaria’s thriving IT sector. 

New arrivals

Economic forecasts for Bulgarian growth in 2015 differ widely, ranging from 0.8% by the French export credit guarantee agency Coface, which has an office in Sofia, to an upbeat 2% by Euler Hermes, the Allianz Group-owned trade credit insurer, which just opened an office in the Bulgarian capital in February. “We expect private Bulgarian consumption and investment to remain robust in 2015 and exports to recover, supported by both lower oil prices and a weaker lev pegged to the euro,” says Ludovic Subran, group chief economist at Euler Hermes. “As a result, the gradual economic uptrend should continue and economic sentiment improve.”

Euler Hermes’ expansion is a sign of confidence in Bulgaria’s trade finance market. Yet the insurer’s move is rather belated. “I would have thought they would have come here earlier,” Daniel Berg, head of the European Bank for Reconstruction and Development (EBRD) office in Bulgaria, tells bne IntelliNews.

The London-headquartered development bank has been reducing its activity in CEE states that are now members of the EU. The bank’s trade finance support activities, aimed at helping banks and businesses in less mature markets engage in short-term trade finance transactions, have nearly dried up. Trade finance instead was taken up by local banks, and in particular by the foreign-owned banks that dominate the markets in the region. Italy’s UniCredit Group, with its 15% banking market share, is the market leader in trade finance in Bulgaria. “The period of six to ten years ago was the period in which I would have thought Bulgaria was entering the real world of trade finance and becoming more like the rest of the region. At some point the banks did not need us [the EBRD] anymore. But about two years ago some banks have requested to restart trade finance activities with us,” says Berg, adding that the volume of transactions with which the EBRD is involved remain small, about €15bn in total last year.

The banks’ recent risk aversion in Bulgaria has less to do with last year’s banking crisis in the country than the general deleveraging trend seen among European banks over the last years, which has negatively affected credit markets in Central and Southeast Europe. Neighbouring Greece’s current financial woes are also affecting the Bulgarian trade finance market as Alpha Bank and Piraeus Bank, which are among the top ten banks in the country, have been reducing their risk exposure.

Despite the uncertain financial market outlook, other positive developments are in sight. The EU has started unfreezing a number of developments funds earmarked for the period 2014-2020 in Bulgaria as the country moves towards better compliance with EU rules regarding public procurement. Projects like the finalisation of a Sofia metro line to the capital’s airport, road construction, housing refurbishment programmes, all co-financed by the EU, will provide some stimulus to Bulgarian equipment imports.