How does the economic crisis affect Greek investments in Bulgaria? Does Bulgaria invest in Greece? How can the business climate between the two countries be improved and what are the chances of the Greeks remaining in the euro zone? We talked about these issues with Minko Gerdzhikov, Chief Executive Officer of the Hellenic Business Council in Bulgaria. The Council has been operating for five years now and it unites about 200 Greek companies with investments in Bulgaria.
An interview by Maria S. Topalova
Mr. Gerdzhikov, how does the crisis affect Greek investments in Bulgaria?
Greek investments in Bulgaria were 2.8 billion euro by the end of 2011, which made Greece the third largest investor after Austria and the Netherlands. But for the first time, last year, the amount of money received from Greek investments and the volume of funds withdrawn from Greek investments was negative. This happened in 2011 and in 2012 too. It means that the money received was less than the money withdrawn. And this is a new phenomenon. Interliz (the leasing subsidiary of the National Bank of Greece) and Cosmo-Bulgaria (the Cosmote company), have withdrawn the largest amounts of money in recent years. The amount withdrawn by Interliz was 145 million euro, whereas that of Cosmo-Bulgaria was 64 million euro. The volume of Greek investments was 8.9% of total investment in 2009. Now, it is 7.7%. I.e. we see that the volume of Greek investments began to decline in the last two years. We are not talking about withdrawal of funds but about returning them to parent companies. So far, the parent companies in Greece have been investing in Bulgaria and the volume of Greek investments has been increasing each year.
Do you expect Greek companies to withdraw from Bulgaria?
It has been observed that the companies with production activities in Bulgaria continue to be active and to increase their investments albeit by less. Electricity, gas and labour force in Bulgaria are cheaper compared with Greece. Tax legislation is more favourable. So, many of the Greek companies find it profitable to produce in Bulgaria if they want their products to be competitive in the Balkans and to export them to the European Union as well. I mean that there are companies in Bulgaria that are dominant in entire industries or that are industrial leaders. For example, the firm Yula-Glass, which is the owner of factories in Sofia, Plovdiv and Novi Pazar, is the leader in the glass industry. These three plants export over 75% of their production. We could say the same about Stomana Industry - Pernik, which is owned by the Viohalko Group. It also exports over 70% of its production. The same applies to Chipita, which operates in the food industry. It is constantly expanding its production facilities and it exports its products. The investment of Titan cement plants, which owns the factories in Pleven and Zlatna Panega, is very successful too.
Restructuring of the banking sector is currently ongoing in Greece. The procedure for the sale of Emporiki Bank has already started. The procedure for the sale of Geniki Bank will start immediately after it. These banks are represented in Bulgaria. For example, how will their change of ownership affect the Bulgarian market?
There are five Greek banks in the Bulgarian market and their assets in the country to the amount of 18 billion leva represent 23% of the assets of the Bulgarian banking system. The fact that one of Europe’s biggest banks, Credit Agricole, owns Emporiki Bank is good for the Bulgarian market. In general, Greek banks in Bulgaria are stable; they are among the most active ones and have no difficulty in serving their customers. In no way has the Greek crisis hurt Greek banks in Bulgaria. They operate under the Bulgarian legislation, which is very strict. We closed 16 banks during the big crisis in Bulgaria in 1996 and supervision has been very strict since then. It is more stringent than it is in Europe and Greece.
Many small Greek companies have been registered in Bulgaria recently in order to avoid high taxes. Does this create new jobs in Bulgaria; is it useful for our country?
The purpose of these transfers is purely fiscal and they cannot create new jobs, nor do they have a positive impact on the Bulgarian economy. They only increase the funds available to banks because they transfer their deposits to Bulgaria too. Otherwise, we have no information about a large Greek company that has transferred its production activates to Bulgaria. We are in constant communication with the Agency for Foreign Investments, and the Greek companies, which have invested over 5 million euro in Bulgaria, are 200 in number and they are all members of the Hellenic Business Council in Bulgaria. A large investment that is being realized this year is in a mall, South Ring Mall and this is the only significant Greek investment. It started two years ago. What is new is that Greek construction companies have won tenders for the construction of highways in Bulgaria. One of them was Aktor, which won the tender for the highway section that connects Thessaloniki with Sofia from Sandanski to the border. Terna has won the tender for the construction of the railway line Plovdiv-Sofia towards the Turkish border.
Do you have data on the Bulgarian investments in Greece?
Yes, we have. They amount only to 27 million euro and are mostly in real estate. This is an insignificant amount.
How is the cooperation in tourism developing? President Rosen Plevneliev stressed that area during his visit to Athens.
Greece is a traditional tourist destination for Bulgaria. In 2011, one million Bulgarians visited it and 1.2 million Greeks visited Bulgaria. Greeks are the largest group of tourists both during the holidays and for skiing. Over 180 thousand cars crossed the Bulgarian border with Greece during our national holiday between 6 and 11 September.
You know the economies of both Bulgaria and Greece well. From an investor perspective, what are the advantages and disadvantages of each of them?
This is evident from the industries in which Greece invests. These are banking, telecommunications, manufacturing of metals, petroleum products, glass, cement, food processing, real estate, computers, while Bulgaria invests primarily in real estate. When we talk about advantages, Greeks come here because when they produce their products here, they are competitive and can be exported to the European Union and all markets. The reasons, as I said, are the low costs of electricity, gas, labour, low taxes, and all this is in a member state of the European Union. I.e. our legislation is the same. Geographical proximity is very favourable too – it takes about an hour to get from Athens to Sofia by plane and the distance from Thessaloniki to Sofia is 300 km. The economic advantages Bulgaria offers are indisputable. Many Greek companies openly admit that if they had not transferred their production activities to Bulgaria 10-15 years ago, they would already have gone bankrupt. And now, the branches in Bulgaria and Romania support the Greek parent companies.
What is your forecast for Greece? Will it be able to remain in the euro zone and emerge from the crisis?
Greece has always been able to pull itself together in difficult times and to find the appropriate solution for seemingly hopeless issues. It should do what Bulgaria did in 1996 – it should boldly implement radical economic measures and cut costs. It is also important for Greece to find a formula of how to drive the Greek industry to start producing and exporting, and thus to accumulate funds with which to repay the loans taken. If these things happen, Greece will emerge from the crisis. It has major advantages over Bulgaria - developed infrastructure, developed tourism, large merchant fleet. If it uses these advantages wisely, they will help it to emerge from the crisis. However, the Bulgarian experience has shown that this cannot happen without radical measures. In 1996, we had a huge foreign debt, 500% inflation, high unemployment. And thanks to the fact that several governments dared and introduced the measures that the creditors had identified for Bulgaria, we emerged from the crisis. We are now stable and we are progressing, yet slowly. Bulgaria has another great advantage - we have all agreed that we will spend as much money as we have produced and we will not borrow. And although they are tempting us with favourable loans and with statements that it would not be a problem if we slightly increased the deficit, the Bulgarian governments are not succumbing. Although slow, the Bulgarian progress is apparent.
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