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Populism, Sanctions, Political Crisis Crimp Bulgarian Investment

  • State spending may be ‘lavish,’ business chief Domuschiev says
  • Domuschiev ‘not optimistic’ about March 26 election outcome

The spread of populism, Russian sanctions that crimp Bulgarian business and political upheaval ahead of snap elections next month are prompting many of the Balkan country’s exporters to think twice about new investments, the head of the country’s Confederation of Employers and Industrialists said.

Business decisions are increasingly being put on hold since Parliament was dissolved on Jan. 26 and an interim cabinet sits in government, raising concern about growing inefficiency in state administration that may last for years, said Kiril Domuschiev, whose confederation includes about 11,000 companies employing 800,000 people.

“Bulgarian industrialists are concerned mostly by the widespread populism and lavish campaign pledges by politicians without calculating where the money will come from,” he said in a Sofia interview on Thursday. “I’m not an optimist about the elections.”

The March 26 snap election, the third in five years, comes after President Rumen Radev, backed by the pro-Russian Socialists, was swept to victory in a November presidential ballot, crushing Prime Minister Boyko Borissov’ Gerb party candidate and leading to his resignation.

Economic Growth

So far, the economy is on track for an eighth straight year of expansion. Gross domestic product grew 3.4 percent in the third quarter, annual exports jumped 15 percent in December and industrial output rose 6.9 percent in the last month of 2016, according to the statistics office. And Domuschiev, who’s assets include more than 1 billion euros ($1.1 billion) worth of stakes in the pharmaceutical, shipping, machine-building and real-estate industries, said he expects further growth, driven by exports and manufacturing.

Nevertheless, business leaders are more uncertain how the next government will shape up and what effect it will have on the country’s development, Domuschiev said. No political party seems to have a majority, which may hamper Parliament’s ability to pass laws to strengthen the judiciary and economy, two of the main concerns that the European Union has about its poorest member.

A key issue for Bulgaria’s industry is the shortage of qualified workforce, including engineers and biologists, who seek higher wages in the EU and U.S., Domuschiev said. It’s crucial to have a working Parliament to pass education reform so that universities would train more students for the industry, he said.

Tight Race

The Socialist party has support of 29 percent of voters, followed by Borissov’s Gerb party with 28 percent, Gallup International reported on Jan. 30. The survey was conducted Jan. 27-29 among 816 people and has a margin of error 3.5 percent.

“We may face more political crises, elections and ensuing uncertainty,” Domuschiev said.

Sanctions imposed by the EU and the U.S. on Russia for its annexation of Crimea are causing Bulgarian companies to“suffer serious losses,” he said. “We hope the EU and Russia will reach an understanding. Russia is an important market for the Bulgarian companies.”

Bulgaria, a former communist country with historical ties to Russia, said exports of medicines, canned fruit, machines and furniture to Russia fell 14 percent in 2016 from a year earlier, while imports from Russia fell 27 percent. Bulgaria gets most of its natural gas, crude oil and nuclear fuel among other goods from Russia.

Eyes Outward

Foreign sales will be key to future growth. Domuschiev plans to expand his Huvepharma EOOD veterinary drugmaker to meet increasing demand and build a new 150 million-euro factory in the city of Peshtera this year to increase output of nutrition additives and animal health products by 50 percent, he said. Huvepharma sells 99 percent of its output abroad to 100 countries. About a month ago, the drugmaker bought Tokyo-based Nai Inc. to set foot on the Japanese market, he said.

He is also concerned about costly state spending, should the Socialists win election. The party plans to revive canceled energy projects, including the construction of a 10 billion-euro nuclear plant. “Such projects create huge deficits in the state energy utilities, which in the end will have to be paid by us.”

Keeping Bulgaria’s flat tax system unchanged “is paramount to stability,” he said, referring to the Socialists’ plans to raise levies. “They should increase revenue by curbing tax evasion, rather then increase our taxes.”

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