Abstract
The infrastructure sector in Bulgaria has seen some activity the fourth
quarter, but this is mainly in project
announcements rather than
commencements. The thorn in the sector’s side, however, continues to be
the
suspended ISPA and PHARE funds from the EU, which highlight the
institutional and deep structural
weaknesses in Bulgaria’s business
environment; with implications, of course, for the infrastructure sector.
The suspension of the funds combined with the financial turmoil – which
has severely affected ability for
financing projects from the
international debt markets – has brought about changes in
Bulgaria’s
infrastructural landscape and prompted BMI to have a more
bearish outlook on the country’s economy.
We have revised our
construction sector forecasts for 2008 onwards. Bulgaria’s
infrastructure and
construction sectors have witnessed stellar growth in
recent years, as many foreign and domestic investors
have been attracted
by combination of the country’s pending entry to the EU (realised in
January 2007)
and its unsaturated construction and infrastructure
market.
However, the momentum is fading as the storm of the global
financial turmoil gathers pace in Europe and
affects the economies of the
region. In BMI’s Bulgaria Q109 Infrastructure Report, we forecast
that
construction industry real growth will be 4% in 2009, with the
construction industry value at
BGN5.3(US$3bn). For 2008 we have also
revised downwards our estimates for industry value to BGN4.4
from
BGN4.7bn
Although the value of the construction industry per se is
forecast to remain quite low – averaging around
BGN6.2bn every year
between 2009 and 2013 – the industry will contribute an estimated
average of
7.8% to the GDP over the period. This value underlines its
value for the economy, and thus the threat its
potential downturn
poses.
Compared with fellow Eastern European countries, Bulgaria has a
poor track record of administrative and
legal reforms – a situation
that started to improve following Bulgaria’s membership of the
European
Union, but which the EC fears has faltered once more. It is
largely believed that bureaucratic delays have
proved to be a serious
constraint for the nation’s infrastructure sector. The withdrawal of the
ISPA and
PHARE funds further deteriorates the situation, and also
Bulgaria’s standing as an investment
destination.
On the upside,
inflation – which has been a key concern and has been responsible for
many project
delays and cost overruns across the spectrum – is
forecast to abate to 6.5% for 2009. This will come on
the back of slower
macroeconomic growth. Furthermore, Bulgaria’s strong GDP surplus is
forecast to be
between BGN1.8bn (US$1.25bn) and BGN2bn (US$1.4bn) up until
2012, providing a cushion for the
infrastructure spending programme. The
tight credit conditions on global markets that are affecting
project
financing operations, however, remain our a key concern for Bulgaria’s
infrastructure sector, as
the government relies on the private sector
financing to support long-term projects.
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