Comparing Bulgaria's northern regions to the country's southern part inevitably points to the economic advantage of regions south of Stara Planina mountain range - with some exceptions. One of them is the economic center in Gabrovo Province, made up of Sevlievo and Gabrovo municipalities, right in the middle of northern Bulgaria.
Though the region's contribution to national GDP stands at just 1.3%, its industry-heavy economy and qualified workforce lift the Gabrovo-Sevlievo cluster to the top 5 in terms of GDP per capita with 14.4 thousand levs (7.4 thousand euro), right behind the southern powerhouse Plovdiv (14.5 thousand levs).
The economy of Gabrovo Province is dominated by industry which contributes 47% of local GDP - the second-largest share in Bulgaria's northern regions after Vratsa which gets a significant boost from Kozloduy nuclear power plant.
At the end of 2019, unemployment stood at 4.5%, close to the national average of 4.2%. According to the government's Employment Agency, the coronavirus crisis has increased unemployment, but only slightly - to 5.3%, which is still well below the national average of 6.7% in December.
Named after the historically dominant city of Gabrovo, the economic center is made up of Gabrovo and the neighboring Sevlievo municipality where the largest industrial companies in the region reside. These are bathroom products manufacturer Ideal Standard Vidima, part of Ideal Standard International (revenue of 450 million levs or 230 million euro in 2019), and toilet seat manufacturer Hamberger Bulgaria, part of German group Hamberger Industriewerke. Along with Gabrovo-based textile manufacturer Dzalli, the three companies account for about 5,500 employees in the region. The positive dynamics on the labor market can largely be attributed to the good education structure of the labor force - Gabrovo had the third-highest rate of higher-education achievement in the country at 31% оf all employed at end-2019, following the indisputable leader Sofia at 54% and Ruse at 35%. In addition, over 60% have a high school or vocational education, which is an important factor in the development of an active manufacturing sector, Adrian Nikolov of Sofia-based Institute for Market Economics commented for Capital.
With over 40,000 people working in Gabrovo Province, over half are employed in manufacturing.
A small sector with potential
So far, IT has not been a big sector of the region's economy - at the end of 2019, less than 300 people worked in ICT there, according to national statistics. However, the Institute for Market Economics is expecting that to change in the near future. To start with, remuneration has been increasing. Whereas at the national level wages in ICT rose by 11% in 2019, in Gabrovo the increase was 21% (to 1573 levs or 804 euro). This is still very low compared to national IT average, so the figure will only go higher.
Secondly, experts from the institute point out that recent local investments may accelerate the development of the ICT sector regionally. One example is the IT company Scientia, which received a grade-A investment certificate at the end of 2019, and is currently setting up two office buildings in Gabrovo. Scientia alone has the potential to create up to 450 jobs in the region by mid-2022. In a small cluster like that, such a player can be a magnet for more to come.
The main bottleneck of Gabrovo's economy is the one that plagues the whole of Bulgaria - ailing demographics. Over the past decade, Gabrovo's population decreased by 18% - to 107,000 people by the end of 2019. For comparison, Bulgaria lost 8% of its population in the same period.
Moreover, the population is aging much faster than the country's average. People aged 65 and over make up close to a third of the local population (20% at the start of the millennium), compared to 22% in Bulgaria as a whole.
In terms of demographic replacement, only Vidin is doing worse than Gabrovo. In 2019, each child below the age of 14 in Gabrovo corresponded to 2.5 people in retirement age. Which means that, in the future, the labor force will have a very difficult time supporting the elderly. Also, businesses may have a more difficult time finding qualified workers for in-demand jobs. Yet demographics is a tricky science and given an economic boost or an unforeseen event (like a pandemic, maybe), trends can change in the near term.
Gun manufacturing is hardly the first thing Bulgarians associate Gabrovo with. But the region has managed to attract a second investor in the sector. At the end of 2020, German group Umarex began production of weapon components through its subsidiary Matega. The investment is worth 3 million euro, and the company is hoping to have 40 employees by the end of this year. In a similar way, close to 30 years ago, German manufacturer Blaser set foot in Gabrovo - with moderate ambitions and one rented plant. Now, Blaser has 200 employees in Bulgaria. Moreover, Umarex' investment is even more valuable to the region considering that most companies are cancelling development plans until the coronavirus crisis is over.
The main draw of Gabrovo for the new investor were the good impressions of Matega manager Tom Banat. Until a few years ago, he worked at Blaser's local headquarters, where he was responsible for business development.
"In Gabrovo we had a very good success, we had a great team and I realized that this is the right place," he said. Thus, when his new company Umarex decided to set up a subsidiary for the production of weapon components, Banat joined as a minority shareholder and recommended the location. "I went to Gabrovo again because of the wonderful contacts and impressions I have from here," he added.
Matega's majority owner is PW-Investment II (part of Umarex) with 76%. The remaining shares are distributed equally between German citizens Bernhard Knobel and Bo Vasco, Tom Banat and the Bulgarian Plamen Petkov. Matega began production of wooden parts for weapons in November, working in a rented building. The company is also planning to have a plant for metal components, which should start operating in February. Matega received its first materials from its supply chain in Germany but is currently looking for local suppliers.
The components coming out of the Gabrovo plant are used for the production of sports weapons for various Olympic disciplines, as well as pistols for police and law enforcement agencies. Most of the production is intended for Umarex, which also owns the Walther and Hämmerli brands.
"Matega's main task is to be a good internal supplier but we also have other customers. Currently, we have a large customer from Germany for whom we make special components, and who is not part of the group," Banat said. "All of our production is designated for Germany for now," he added.