- Which economic segments were the largest beneficiaries of European Investment Bank's (EIB) financing in Bulgaria in 2017?
EIB's exposure in Bulgaria stood at EUR 2.6 bn or 5.1% of GDP at the end of 2017. This compares to an EU average exposure of 3.4% of GDP. Exposure to the transport sector (railways, roads, sea transport, air transport, other transport and urban inter-modal transport) covers nearly half of our investments, amounting to 49% of total exposure. SME and intermediated lending accounted for 25% of total exposure, while water and sewage accounted for 17%. The remaining 9% of our lending goes to energy, composite infrastructure, other manufacturing, services, and agriculture and food.
- What are the larger infrastructure projects supported in Bulgaria by EIB so far and with what funding?
EIB has been a major contributor to infrastructure projects in the country since the early '90s. With Bulgaria's entry into the EU, the Bank has and will continue to co-finance several key projects of national priority in transport and energy with EU funds. For instance, over many years EIB has supported the Municipality of Sofia to build up key investment projects such as Sofia's metro.
In 2018, we are aiming to support further investments in infrastructure such as the Toplofikacia Combined Heat and Power Plant in Sofia and the gas interconnector between Bulgaria and Greece.
It is important to mention also that in Bulgaria the EIB Group has been successful in the past with the deployment of "blending schemes" for SMEs (i.e. JEREMIE) and urban development (i.e. JESSICA) where EU Structural Funds were leveraged and a wide range of financial tools developed, including equity, loans and guarantee schemes.
- Would you list the advantages of EIB's financial support compared to standard bank credits?
EIB is AAA-rated and is able to raise funds on the international capital markets at very attractive interest rates. As a non-profit making institution, the Bank passes the bulk of these attractive terms to its clients. Plainly stated, our interest rates are low, compared to other sources available in the financial sector.
- How does EIB finance small and medium-sized enterprises? Are there any restrictions on the areas of funding?
EIB lends to SMEs, hence the real economy, through the provision of credit lines to partnering banks but also uses its sister company, the European Investment Fund (EIF), to provide tailored made guarantee and equity solutions in support of SMEs' investment activities.
The Bank can finance most sectors, without tobacco, alcohol, gambling and weapons, whereas there are some restricted sectors, for example in energy, where the Bank assesses the investments' eligibility on a case-by-case basis.
- What are the possibilities for financing infrastructure projects and industrial sites in Bulgaria through EIB's instruments?
Bulgaria has been able to attract its fair share of foreign direct investments into the manufacturing and industrial sectors in the last decade or so and there is a good potential that the trend continues. These sectors are obviously open to EIB financing and represent a key activity in support of private sector investments.
The key is not the number of projects being submitted to the Bank but rather for promoters to present their business case in a convincing manner and submit financial proposals demonstrating the projects' viability and bankability. In order to support our potential clients, we intend to widen our advisory services by taking advantage of the EIB local presence of the European Investment Advisory Hub (EIAH), for which we already had 49 requests as of the end of last year.
- Do you think the investment environment, the legislation, the judicial system and the political environment in Bulgaria guarantee investment safety? Are there any challenges, whose successful resolution would help increase the amount of investment credits?
The rule of law, enhancing public administration institutional capacity, restructuring state owned companies, improving the judicial system, adopting and respecting transparent tendering procedures, cutting red tape, tackling corruption and the gray economy are areas where the government can intervene to improve the business environment.
In the particular case of Bulgaria though, the lack of skilled labor is an additional impediment to long-term sustainable growth. The Bank recently conducted an EIB Investment Survey (EIBIS) by interviewing 12,500 non-financial firms across the EU: accordingly, about 80 % of Bulgarian firms see the low availability of staff with the right skills (not necessarily high skills) as an impediment to investment, significantly above the EU-average.
EIBIS requested firms to name one area as public investment priority: linked to human capital, namely Childcare/Schools, Professional Training/Higher education, Hospitals/Care and Social housing. Bulgaria comes fourth in this ranking, with about 50% of firms wanting more investment in human capital.
- Do you see improvements in the Bulgarian economy's competitiveness under the Juncker Plan? What can be done to further enhance competitiveness?
All-in-all, since 2015 EIB has supported Bulgaria with 13 transactions under the Juncker Plan, amounting to €281 mln in loans and €74 mln in guarantees and equity through the EIF. These investments have contributed to mobilizing investment of €1.6 bn for the country. With these efforts, Bulgaria ranks third in the EU in terms of expected funding mobilized to GDP and this certainly acts to improve the country's competitiveness in the EU market.
- What changes can Bulgaria expect in regard to EIB's financial support after 2020?
After 2020 we will see the creation of a new generation of programs/instruments, such as the future InvestEU Program which is the continuation of the very successful Juncker Plan/EFSI. EIB will remain committed to fulfilling its policy role as the EU Bank responding to the needs and sustained demand for EIB financing in Bulgaria after 2020. In particular, the EIB Group would focus on the "fours Cs" of Cohesion, Competitiveness, Climate, and Cooperation.
- What are the challenges companies face in regard to digitalization? How can business better prepare for them?
Europe's investment gap in innovation and digitalization is substantial: EIB estimates suggest that the investment gap in innovation (R&D, digitalization and broadband) across the EU will be as high as EUR 150-170 bn per annum until 2030. Changing business models, data issues, legal questions of liability and intellectual property, standards, and skills mismatches are among the challenges that must be met if benefits are to be gained from new manufacturing and industrial technologies.
Breakthrough innovation requires large investments over a significant period of time. However, this is the kind of finance that is missing in Europe and presents a systemic failure: venture capital is too small, it is fragmented, short term, and heavily concentrated on digital - not enough oriented towards deep-tech - and lacking critical mass for such patient capital.
Due to constraints internal to the firm, SMEs are disproportionately affected by market failures, barriers and inefficiencies, which prevent them from accessing strategic resources, including finance, but also management capacity and skills, and knowledge networks.
The difficulties for SMEs to finance their digitalization efforts is something we, at EIB, have experience of and working to overcome. Over the last few years we have been supporting both highly innovative European software companies as well as the digitalization of services of manufacturing companies, an area where Europe is lagging behind Asia and the US.