Bulgaria Infrastructure Report Q2 2008

Bulgaria is now home to a vibrant construction industry witnessing a surge in investments from European and international investors. Foremost among these are the European Investment Bank and Europe-based multinational contractors, all vying for a piece of Bulgaria's ever-growing construction pie. Although the value of the construction industry per se is forecast to remain quite low, averaging around US$2.8bn per year to 2012, the construction industry made up over 6% of all domestic production in 2007.

It is estimated that there are over 11,000 companies currently operating in Bulgaria's domestic infrastructure sector, employing over 200,000 people. Under the National Strategy for Integrated Development of the Infrastructure of Bulgaria from 2006 to 2015, projects are currently underway or being planned across segments including road and rail transport, aviation, oil, power and water. Due to the growth of tourism in Bulgaria, the country is witnessing a spurt in the number of hotels and resorts, built by both domestic as well as foreign players. Moreover, with some key pipelines being planned through its territory, Bulgaria is all set to become Russia's gateway to Europe for oil and gas transportation.

The European Investment Bank (EIB) signed a memorandum of understanding (MoU) with Bulgaria on October 5 2006, which allots a support framework of EUR5-7mn (US$6.38-8.94mn) per year during 2007-2013. The amount will be used for Bulgaria's national transport and basic infrastructure investment plans. The EIB's financial support is expected to enable Bulgaria to step up its infrastructural reforms after accession to the EU on January 1 2007. The EIB will also extend its support to small and mediumsized enterprises (SMEs) in Bulgaria through a new global loan to DSK Bank. The EUR30mn (US$38.34mn) global loan aims to increase the financing for SMEs and municipal infrastructure projects in Bulgaria.

However, with its share of downsides, the picture is not all rosy for the local construction industry.

Compared with peers from Eastern Europe, Bulgaria has a poor track record of administrative and legal reforms - a situation that has begun to improve following Bulgaria's membership of the European Union (EU). It is largely believed that bureaucratic delays and paperwork have proved to be a serious constraint for the nation's infrastructure sector.

That said, there remains great unrealised potential in the Bulgarian construction industry and this report forecasts growth at an average annual rate of 7.8% over the 2008-2012 period. The industry is expected to reach a value of US$3.34bn by the year 2012.