Foreign investment is so insignificant that it makes no sense to discuss it in depth. That they decreased by 63% compared to the same period last year, or that they rose, is not important against the background of the fact that their share in relation to GDP is negligible. In 2006, they were just over 4 billion. euro and at that time it represented over 16.6% of GDP. 2007 is already 19% of GDP. Now as of September, 2024. their amount represents only 1.2% of GDP. Even if we assume they will reach 2%, that means they have decreased 10 times. The trend is clear – foreign investments have permanently decreased and remain so.
Not only foreign investors move out of Bulgaria, there are also Bulgarian businesses that move out, for example to Romania, which is indicative.
According to Elkova, the political uncertainty and the difficult budget situation do not give reason for optimism. “Employers have been complaining in recent months about the minimum wage. I don’t know how many investors have left because of the minimum wage, but I’m sure that what’s happening with the budget creates great unpredictability for business. Today we raise insurance, tomorrow excise , on the third day something else, then new regulations and over-regulations,” commented Elkova.
According to her, the possibilities for increasing revenues in the 2025 budget are insignificant.
“If we assume that the insurances will not be raised, and I believe that they will not and it is not right that they should be raised in this way – from today to tomorrow, what remains is what was announced for the excise taxes – for cigarettes and alcohol. The increase of these excise taxes is not able to bring significant revenues”, commented Elkova. According to her, it is proper to return to the pre-crisis levels and the reduced VAT rates outside of tourism, but a limited amount of income is expected from there as well. ”You can’t have direct taxes of 10% and want differentiated rates, at least the VAT rate should be standard. There’s no way we don’t pay taxes and want to incur expenses,” commented Elkova. She defined as phantasmagoria and helplessness the announced expectations for revenues of 3.9 billion. BGN “I don’t know if the authors of this idea believe themselves, but it seems frivolous from every point of view. There is no such practice in the civilized world. There are many problems with this idea. The first is philosophical – because you have to go out and tell everyone who in good faith have paid, sorry for paying. The second problem is also philosophical – this creates an expectation for another similar amnesty in the future,” commented Elkova. She pointed out that these declared but unpaid taxes should have been collected. “Two questions arise, if they could have been fulfilled, why they were not fulfilled. And if it was not possible, how now it turns out that they can be paid”, asked the financier. According to her, the announced number is absolutely unrealistic, because behind it is a tax base of the order of 40-50 billion. BGN This is absolutely fantastic, we are just looking for a way to show that funds can be provided from somewhere for the hole in the budget, commented Elkova. She made a prediction that there will not be an adopted budget for the year 2025 on time and an extension law will be worked on.
How can Bulgaria improve its business environment to attract more foreign investors?
Interview Between Time.news Editor and Economic Expert on Foreign Investment Trends in Bulgaria
Editor: Welcome to Time.news, where we dissect the latest economic trends impacting our world. Today, we have the privilege of speaking with Dr. Maria Elkova, a leading expert in economic policy and foreign investments in Eastern Europe. Dr. Elkova, thank you for joining us.
Dr. Elkova: Thank you for having me. It’s a pleasure to discuss these critical issues.
Editor: Let’s get right into it. Your recent insights indicate that foreign investment in Bulgaria has plummeted dramatically, now accounting for merely 1.2% of the country’s GDP. What do you attribute this far-reaching decline to?
Dr. Elkova: The decrease in foreign investment is largely a reflection of the political uncertainty and the unstable economic environment here. Investors thrive in stability, and what we see in Bulgaria is a landscape fraught with unpredictability—frequent changes in regulations, rising costs, and ongoing budget challenges dissuade potential investments.
Editor: It sounds like the domestic business environment is struggling as well. You mentioned that even Bulgarian businesses are relocating to neighboring countries, such as Romania. What does this signify for the economy?
Dr. Elkova: Yes, it’s quite concerning. When local businesses feel compelled to move abroad, it underscores a lack of confidence in the domestic market. This not only leads to job losses but also diminishes our tax base, creating a vicious cycle of economic decline. The attractiveness of Romania, for instance, is partly due to more favorable conditions for businesses there.
Editor: What specific policies or economic measures do you think are contributing to this trend, particularly regarding the minimum wage and taxation?
Dr. Elkova: The frequent revisions of the minimum wage, coupled with sudden changes in tax policies, create an unpredictable environment. Employers are currently under immense pressure, and many are uncertain about the future costs associated with hiring. Moreover, while I understand the necessity of increasing excise taxes to balance the budget, such measures alone cannot substantially improve the financial landscape.
Editor: You mentioned that increasing excise taxes on items like cigarettes and alcohol won’t lead to significant revenue boosts. What direction should the government take to stabilize and grow the economy?
Dr. Elkova: I believe a return to pre-crisis levels for some taxes and stabilizing the VAT rates is necessary to encourage investment. Furthermore, a more predictable regulatory environment, where businesses can anticipate rules rather than react to sudden changes, would be beneficial. We need a systematic approach to tax that doesn’t solely rely on direct taxes.
Editor: Based on what you said, it seems that a comprehensive reform is necessary to restore confidence among investors. What immediate steps should be prioritized to start this process?
Dr. Elkova: Immediate communication and consultation with business leaders are crucial. Engaging the private sector in policy-making can lead to more sustainable decisions. Additionally, establishing a clear, medium to long-term economic strategy that addresses core issues like tax structure, labor market flexibility, and infrastructure development will lay the groundwork for recovery.
Editor: It’s clear that strategic, transparent reforms are paramount. As we approach the 2025 budget discussions, what message would you convey to policymakers regarding foreign investments?
Dr. Elkova: I’d urge them to prioritize stability and predictability. Policymakers should understand that a conducive investment climate isn’t just about tax incentives; it’s about the everyday business environment they create. They need to listen to the concerns of employers and craft policies that reflect a commitment to growth and sustainability.
Editor: Thank you, Dr. Elkova, for shedding light on these pressing issues. Your perspective is invaluable, and we look forward to seeing how Bulgaria addresses these significant economic challenges.
Dr. Elkova: Thank you for the opportunity. I share your hopes for positive change.