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Guest Editorial: Bulgaria – 2016

Guest Editorial: Bulgaria – 2016

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Bulgaria, a land with over 7,000 years of cultural history and an important geographical location, continues to face its traditional challenges.

Here we will list just some of the international political and economic factors which influence the country’s development. There are various conflicts and disputes in and among Bulgaria’s neighbors affecting its interests. Since 2014, for instance, the war in Ukraine (which is located only 300 km from Bulgaria) and the resulting global tension, including the EU sanctions imposed on Russia, have had significant economic and social impact on the country, as has the friction between Bulgaria’s “Traditional Big Brother” (Russia) and its “Good Neighbor” (Turkey). It is to be remembered that Bulgaria has about nine percent Muslim population – and at the same time Bulgarians report some of the highest amount of pro-EU support (over 72 percent) of all EU members. These macro political factors are relevant particularly to transnational projects and the business developments guided by geopolitical interests.

The economic situation with another neighbor, Greece, including the strikes which regularly block the Greek-Bulgarian border, also has a negative effect on local companies and, of course, on the image of the whole region. The fact that 22 percent of the banking sector in Bulgaria is controlled by Greek banks is of less concern due to the policy of the Bulgarian National Bank and the changes in the ownership and management of the banks in Greece. It is reported that about 6,000 Greek small and medium companies recently moved to Bulgaria. 

On the economic side, a number of foreign investors have left Bulgaria in the last few years and the level of annual FDI has dramatically decreased. A few strong local groups continue to develop their presence in important sectors, replacing the departing foreign entities. At the same time, in the last few years there have appeared a number of good, clean, and prosperous Bulgarian companies which work regionally and even globally, mainly in the IT, energy infrastructure, construction, and niche services and products sectors. Bulgaria also retains its leading position in Europe in outsourcing. Many global players have established presences here, and the country is continually growing as a regional or global hub for shared services. Traditionally, Bulgaria is active as an exporter in regional energy markets, and market integration shows promise in this direction.

With the assistance of EU programs and funds, and mainly because of a high entrepreneurial spirit, the country became a regional leader and a good model for startups. There is a hope in 2016 that the IT industry will grow up to 12 percent and will contribute over 5 percent of Bulgarian GDP. There are positive signals from agriculture and the food industry. 2015 ended with 2.2 percent GDP growth mainly due to increasing exports, low oil prices, and good usage of EU funds. Preliminary figures also show that the budget deficit and the current account deficit have also significantly decreased in the last 12 months. There is a slight improvement in the number of M&A transactions, with an increasing role played by local buyers. 

A well-functioning judicial system is crucial to the business climate. That is why judicial reform in this country is so important. Regrettably, it is a battlefield where various hidden interests fight and, apart from related political scandals, not much has been done in this respect. The latest EC monitoring report at the end of January, 2016 (Bulgaria and Romania are under the so-called Monitoring Regime of the EU Commission), was particularly negative because of lack of reforms in the judiciary. The Government is promising action, assistance from EU member countries has already been offered, the voice of the civil society is much stronger, and there is hope that certain progress will be made.

The political, social, and economic environment briefly described above also determines the status of the legal market. This relatively small landscape is dominated by well-established local law firms, with the presence of just a few foreign law firms (i.e., CMS, Kinstellar, Schoenherr, and Wolf Theiss). The shrinking market has led to a decrease in legal fees, which historically have been among the lowest in South-East Europe. The low number of foreign investors (although there are signs that the number will grow in 2016) makes local companies attractive targets for business development of law firms. The global economic situation makes the good local entrepreneurs and their transactions also interesting to the regional teams of the few big international firms which monitor and do not miss opportunities to provide their professional services. Due to the current business environment, many firms are active in dispute resolution, restructuring, insolvency, and debt recovery. Practice areas such as IT, IP, Cyber Security and Data Protection attract attention because of the promising future.

By Borislav Boyanov, Managing Partner, Boyanov & Co.

This Article was originally published in Issue 3.1. of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

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